Chancellor Rishi Sunak has announced that the basic rate of income tax will be cut from 20 pence to 19 pence in the pound by 2024.
In his Spring Statement today (March 22), Sunak outlined that this will come in before the end of this parliament in 2024.
According to the Office for Budget Responsibility, by 2024, inflation is expected to back under control, with debt falling sustainably and the economy growing
Sunak said: “Our fiscal rules are met with a clear margin of safety and so my final announcement today is this.
“I can confirm that before the end of this parliament, in 2024, for the first time in 16 years, the basic rate of income tax will be cut from 20 to 19 pence in the pound.
“A tax cut for workers, for pensioners, for savers. A £5bn tax cut for 30mn people and let me be clear with the house, it is fully costed and fully paid for in the plans announced today.”
The chancellor said last year he told the house that he would cut taxes for hardworking families and do so in a responsible and sustainable way.
“Today I am delivering on that promise,” he added. “So let me say this, cutting taxes is not easy - it requires hard work, prioritisation and the willingness to make difficult and often unpopular arguments elsewhere.
“It is only because this government has been prepared to make those difficult but responsible choices to fix our public finances that I can stand here and tell this house that not only are taxes being cut but the debt is also falling whilst public spending is increasing. This doesn’t happen by accident.”
A tactical and political move
However, the question remains about whether it is enough.
Shona Lowe, a financial planning expert at Abrdn, said the measures announced by the chancellor should help to alleviate some of the financial strain households and small businesses across the UK are currently facing.
However she argued that with the cost of living crisis likely to get worse in the months to come, it will have to be a “wait and see”.
Lowe said: “More and more are starting to feel the squeeze as inflation continues to rise, while anyone with savings held in cash is seeing the value of their money erode at pace.
“While we welcome the 1p reduction in the basic rate of income tax, savers still need to take steps to reduce the impact of inflation.
“Moving cash into arrangements where the returns could be closer to the inflation rate could be an effective way for people to make the most of their savings this year, while speaking to a professional adviser will help savers ensure they are maximising those returns, benefiting them both now and in the future.”
Likewise, Tim Walford-Fitzgerald, partner at accountancy firm HW Fisher said the one penny drop is “a tactical and political move” from the chancellor.