Liz Truss plans to cut taxes further in the new year

Rebel Tory MPs have warned they will vote against the finance bill implementing the tax cuts if sterling falls below $1 - Reuters
Rebel Tory MPs have warned they will vote against the finance bill implementing the tax cuts if sterling falls below $1 - Reuters

Liz Truss is planning to continue her tax-cutting spree in a new year Budget that will include further reductions in income tax, and discounts for savers and child benefit claimants.

Treasury officials are drawing up a list of “pinch points” that discourage people from earning more money by imposing high rates of tax on extra earnings, as part of a wholesale review of the tax system.

Up to 1.6 million savers could benefit from a review of the lifetime and annual allowances on pension pots, which currently can encourage employees to take early retirement to avoid the “tax trap”.

Workers who earn more than £100,000 would be given a full income tax personal allowance, under plans that amount to a tax break worth up to £5,000 a year to the highest earners.

And ministers are considering abolishing a charge for those who earn more than £50,000 and claim child benefit, over concerns it discourages households from earning more.

The changes are likely to come as part of a full Budget next year, following the conclusion of a tax review announced by Kwasi Kwarteng, the Chancellor, in a statement on Friday that reduced taxes by more than any budget since 1972.

Red tape will also be slashed for small businesses, with only larger firms required to conform to regulations such as those requiring calorie counts on menus, and planning rules will be relaxed to speed up new housing developments. This week, the Government will also scrap a plan to stop supermarkets from selling unhealthy foods at checkouts and ministers are preparing to end a sugar tax on soft drinks.

Ms Truss is planning to change visa rules to allow immigrants to work in the UK in key sectors like agriculture and health.

The tax cut announcements have prompted the pound to tumble against the dollar, with experts predicting the currencies will reach parity by the end of the year.

Rebel Tory MPs have warned they will vote against the finance bill implementing Mr Kwarteng’s cuts if sterling falls below $1. But ministers have vowed to press on with cuts and deregulation, as they argue economic growth must be the Government’s main priority.

Those familiar with discussions say the Treasury believes lifting the lifetime allowance on pension pots could encourage doctors, police officers and highly paid nurses to remain in work.

Under the current system, savers are forced into paying 55 per cent tax on pension pots valued at more than £1 million, prompting many to retire instead in the belief that work is no longer worth their while financially, or in frustration at the bureaucracy involved.

The Telegraph’s “Hands off our pensions” campaign has urged ministers to change the system to avoid penalising those who save more.

Parliament’s health and social care committee has previously warned that the “pension tax trap” is causing NHS workers to retire early rather than staying in post to work on patient backlogs.

The British Medical Association has pushed for doctors to receive a bespoke tax break similar to one introduced for judges earlier this year.

The Telegraph understands those who earn more than £100,000 will also benefit from a tax-free personal allowance.

Under rules introduced by Alistair Darling in 2009, the highest earners see a gradual reduction in their tax-free allowance from the Treasury, meaning they pay an effective rate of income tax of 60 per cent for earnings of between £100,000 and £125,140. Restoring the allowance would save those who earn more than that amount £5,028 a year.

A Whitehall source said the clawing back of the personal allowance meant “the marginal tax rate is absurd”.

“It would be sensible because the incentives that the current marginal tax rate creates are awful, and I think it’s one of the largest reasons why there’s such a bottleneck in GPs,” they added.

Kwasi Kwarteng, the Chancellor, has reduced taxes by more than any budget since 1972 - Reuters
Kwasi Kwarteng, the Chancellor, has reduced taxes by more than any budget since 1972 - Reuters

The “taper rate” for Universal Credit claimants is under review and could fall by five points to 50 per cent – giving more to those who claim benefits but also work – while a charge for high earners who claim child benefit is also set to be scrapped.

Derek Benstead, a pensions specialist at First Actuarial, said: “To make the problem go away, the lifetime allowance needs to go back up to at least £1.5 million, or ideally £1.8 million, where it was in 2011, along with the abolition of the annual allowance.”

A poll by Redfield and Wilton Strategies for The Telegraph shows 44 per cent of voters think the Tories are a low-tax party, up from 26 per cent on Feb 2.

But ahead of Labour’s annual conference on Sunday, Rachel Reeves, the shadow chancellor, told the Telegraph that the Tory growth strategy was “for the birds”.

Ministers are working on a series of policy announcements, including a medium-term fiscal plan that will likely be announced before Christmas. There will be measures to improve business competitiveness amid fears over a decade-long stall in productivity.

Plans have also been drawn up for a UK sovereign wealth fund, which could be created partly from royalties from fracking. The fund would be open to investment from pension funds and focused on long-term investments to drive growth, including in Mr Kwarteng’s new “investment zones”.