- Millions of savers to face Budget squeeze as ISA tax-free allowances to be frozen
- Jeremy Hunt will unveil plans to raise £54bn to balance Gov books tomorrow
- Economist Gerard Lyons warned ‘austerity’ package would not help the economy
- Mr Hunt said people wanted the UK to be ‘a country that pays its way’
Millions of savers face a budget squeeze today when Jeremy Hunt unveils plans to raise £54billion to balance the Government’s books.
Whitehall sources said tax-free allowances for ISAs and other savings products would remain frozen, despite their value being eaten away by high inflation.
The annual £20,000 ISA allowance has been frozen since 2017 and is set to remain so until after the next election. If it had risen in line with inflation it would already be £22,235.
Other tax-free savings rates will be frozen in a further blow to investors, who also face the prospect of lower allowances and higher rates for both capital gains tax and dividend tax.
It comes despite growing warnings that the scale of the tax grab risks plunging the UK into a deeper recession that could further damage the public finances.
Economist Gerard Lyons, who advised both Boris Johnson and Liz Truss, yesterday warned an ‘austerity’ package of tax rises and spending cuts was ‘not the policy mix that the economy needs’.
Jeremy Hunt will unveil plans to raise £54billion to balance the Government’s books today
Rishi Sunak has said a tough package is needed to tame inflation
Mr Lyons acknowledged that Miss Truss ‘overdid it and spooked the markets’ with her ill-fated mini-Budget in September.
But, writing on the Conservative Home website, he insisted: ‘We must not throw the baby out with the bathwater and think fiscal policy can’t be used at all to help stabilise the economy going into a recession.
‘The danger is a short-lived recession becomes a far deeper one, with long- lasting scarring.’
Mr Lyons said the Government risked being in thrall to the Office for Budget Responsibility, whose forecast of the economic outlook will dictate the size of tomorrow’s Budget package.
Economist Gerard Lyons (pictured) yesterday warned an ‘austerity’ package of tax rises and spending cuts was ‘not the policy mix that the economy needs’
Sir Edward Leigh (pictured) urged the Chancellor not to raise taxes to fund a ‘larger and larger state’
‘We now have created a situation where the OBR is effectively setting the immediate stance of fiscal policy. The danger is a pro-cyclical policy,’ he said.
‘If economic expectations are poor, the finances look poor, so austerity or tax hikes follow – but these in turn make the economy and finances worse.’
Some Tory MPs also warned Mr Hunt to limit the tax raid. Sir Edward Leigh urged the Chancellor not to raise taxes to fund a ‘larger and larger state’, adding: ‘Will he remember the good voters of Middle England, people who’ve rarely if ever been on benefit, who’ve worked all their life for their mortgage and for their pension pot and they fear that more and more of them are going to be dragged into higher rate tax?
‘Their pension pot attacked so the state can get larger and larger and more and more spent on those on benefits.’
Mr Hunt said people wanted the UK to be ‘a country that pays its way, that doesn’t borrow at the expense of future generations and that can be trusted when it comes to sound money’.
Speaking at the G20 summit in Bali, Rishi Sunak said the tough package was needed to tame inflation. The Prime Minister acknowledged that the UK’s international reputation for financial prudence had taken ‘a bit of a knock’ and said rising prices were ‘the number one challenge we face’.
He added: ‘It’s important that we get a grip of that.’
