Budget 2024: 'Difficult choices' ahead, warns health secretary - as he refuses to rule out income tax thresholds will be frozen

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While the NHS may be an exception this budget – Streeting must produce results What are income tax thresholds and what happens when they are frozen?

The health secretary has warned of “difficult and big choices” coming in the budget, as he refused to rule out that the chancellor will freeze tax thresholds.

Wes Streeting told Sky News’ Sunday Morning with Trevor Phillips programme the government “can’t fix 14 years in one budget” and there are lots of choices “we will have to make that we’d prefer not to have to”.

Chancellor Rachel Reeves is expected to prolong the freeze on income tax thresholds by two years to 2030 after the previous Conservative government froze them until 2028.

Politics latest: Labour ‘can’t change 14 years in one budget’

It means thresholds would not start rising with inflation once again, resulting in hundreds of thousands of people being dragged into higher tax bands.

Mr Streeting gave the government’s strongest indication yet it would be freezing those thresholds.

When asked if income tax thresholds will be frozen, he told Trevor Phillips: “The chancellor and the whole government are going to have to make difficult and big choices in this budget to stabilise and fix the foundations of our country so we can build a better future.

“There are a whole load of choices that we will have to make that we would prefer to not have to, but if we don’t make the choices now we’ll end up paying a much heavier price for failure in the long term.

“We’re not prepared to do that.”

While the NHS may be an exception this budget – Streeting must produce results

Rob Powell

Political correspondent

@robpowellnews

In a budget where many stand to be squeezed, the NHS may be one of the exceptions.

But that’s not to say Wes Streeting is having money thrown at him.

With little funding to go around, there are conditions – namely, bringing about a rise in productivity and patient outcomes.

The health secretary is signed up to this programme and this week begins the practical process of coming up with what the reforms will look like.

His challenge is bringing NHS staff and trade unions with him on this journey of change and finding ways to achieve tangible results for patients (voters) ahead of the next election.

To govern is to choose, and Sir Keir Starmer has clearly picked his public service priority – and it’s health.

But every pound given to the NHS is one not spent in stretched sectors like justice, education, or local government.

That makes it essential that the energetic new health secretary ensures the resources being handed to him are used well.

The chancellor is trying to find £40bn through tax rises and spending cuts and is expected to announce a raft of measures in the budget on 30 October.

Mr Streeting previously voted against freezing income tax thresholds under Rishi Sunak’s Conservative government but said he would not vote “against anything in the chancellor’s budget”.

Labour previously called the measure a “stealth tax on working people” when it was announced by Mr Sunak in 2022.

The health secretary insisted the government would keep its manifesto promise not to increase income tax, national insurance or VAT on working people “despite the pressures”.

In Labour’s manifesto, the party pledged not to increase “the basic, higher, or additional rates of income tax”, with government sources pointing to this “language”.

Mr Streeting’s refusal to rule out extending the threshold freeze further suggests the chancellor believes she would not be breaching the commitment as the 20p, 40p and 45p rates would remain unchanged.

What are income tax thresholds and what happens when they are frozen?

Everybody has a “personal allowance”, the amount somebody can earn before they pay income tax.

In England, Wales and Northern Ireland it is £12,750 – if somebody earns below that no income tax has to be paid.

There are then different rates of tax depending on how much somebody earns, which are known as thresholds:

Basic rate: Earning £12,750 to £50,270 – pay 20% tax on income above personal allowance.

Higher rate: Earning £50,271 to £125,140 – pay 40% tax.

Additional rate: Earning more than £125,140 pay 45% tax.

Once earnings hit £100,000, the personal allowance starts to shrink by £1 for every £2 earned between £100,000 and £125,140 so could end up with no personal allowance before having to pay tax.

The personal allowance has been frozen since 2021/22, so has not increased in line with the cost of living as before.

Since it was frozen, inflation has risen considerably and incomes have, on the whole, increased with inflation.

So, as people’s incomes have increased to keep up with inflation more people are being brought into paying any income tax.

More people are now in higher tax bands even though they have not had a proper pay rise that leaves them better off in real terms – known as fiscal drag.

By June this year, 1.6 million more people were in the 40% tax bracket compared with before the freeze.

Fiscal drag, sometimes called a “stealth tax”, raises lots of money for governments to pay off public debt, with the OBR estimating it will raise more than £25bn a year in 2027/28.

Scottish thresholds are different, and not affected by the Westminster government, as Scotland’s parliament has the power to change rates and thresholds, other than the personal allowance.

The health secretary added: “We can’t fix 14 years in one budget. So this is a process of priorities, choices and trade offs.”

The government has come under further fire over the past week after it emerged the chancellor will most likely raise national insurance for employers.

Referring to that, Mr Streeting said: “I don’t know if that’s going to be in the budget, but we did not rule out that or a number of other things, because we were very clear in our manifesto that every single promise we made, was a promise we could keep and one we could afford, and we’re going to deliver every single bit of that manifesto.”

He also revealed the NHS budget has been set by the chancellor ahead of her announcement in 10 days.

Each department’s spending settlement was meant to be signed off by Wednesday evening but several departments had been unable to agree with the Treasury on the scale of cuts they will be expected to deliver over the next two years in a show of how large they may be.

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