Millions of public sector workers face a two-year pay squeeze

Millions of public sector workers face a two-year pay squeeze before the general election due to rocketing inflation – as Liz Truss SCRAPS plans for a new spending review and announces £45bn tax bonfire

  • Britain faces inflation rate of 22% this winter leaving millions unable to pay bills
  • Goldman Sachs predicts it will double in 2023 as price cap on energy bills rises
  • This means public sector workers will have real-term pay cuts before 2024
  • It came after Kwarteng’s £45billion ‘mini-budget’ of tax cuts and new borrowing 

Millions of public sector workers face a two-year pay squeeze before the general election due to rocketing inflation. 

Liz Truss promised a spending review during the Tory leadership but has now dropped that plan, notwithstanding the possibility that inflation could remain in double figures in 2023. 

This means public sector workers will have real-term pay cuts before 2024, The Times reported.

Britain faces an inflation rate of 22 per cent this winter leaving millions unable to pay the bills and businesses going to the wall.

Goldman Sachs predicts inflation will double in 2023 as the price cap on energy bills continues to rise. 

Chancellor Kwasi Kwarteng scrapped the top 45p rate of tax and cut 1p from the basic rate in the biggest package of tax cuts by a British Government for half a century. 

He is also drawing up plans for a fresh round of tax cuts to help families struggling with the cost of living.

Chancellor Kwasi Kwarteng scrapped the top 45p rate of tax and cut 1p from the basic rate in the biggest package of tax cuts by a British Government for half a century

In a combative interview yesterday, the Chancellor brushed aside market jitters about the £45billion of tax cuts in last week’s emergency Budget and declared he was determined to go further.

‘There’s more to come,’ he said. ‘We’ve only been here 19 days. I want to see, over the next year, people retain more of their income because I believe that it’s the British people that are going to drive this economy.’

Mr Kwarteng has launched a review of all tax rates ahead of a formal Budget that is expected next year. A Treasury source told the Daily Mail the Chancellor wanted to ‘make the tax system simpler, better for families and more pro-growth’.

The source added: ‘It is early days – the review has only just started – but it is fair to say we are looking at whether there is more we can do to help families.’

Options include scrapping the tax on child benefit that affects parents earning more than £50,000 a year. But Mr Kwarteng is also considering a tax break for those who stay at home to care for children or loved ones.

The idea, floated by Liz Truss in her leadership campaign, would allow couples to transfer their personal tax allowance, currently worth £12,570. A person taking time off work to care for a relative would be able to transfer the whole of their allowance to a working member of the household – saving couples up to £2,514 a year.

At the time, Miss Truss described families as ‘the bedrock of society’, adding: ‘We will review the taxation of families to ensure people aren’t penalised for taking time out to care for their children or elderly relatives.’

The review will also look at simplifying the tax system. Complex rules which mean people earning between £100,000 and £125,000 pay an effective tax rate of 60 per cent could be axed.

And the Chancellor will examine whether lifetime pension allowances should be raised, amid fears that some professionals are retiring early because punitive tax rates mean it is not worth them working any longer.

The Chancellor told the BBC’s Laura Kuenssberg show that he was ‘focused on tax cuts across the board’.

He added: ‘We’ve got to have a much more front-footed approach to growth and that’s what my Friday statement was all about. If we can get some of the reforms, if we get business back on its feet, we can get this country moving and we can grow our economy, and that’s what my focus is 100 per cent about.’

Mr Kwarteng has launched a review of all tax rates ahead of a formal Budget that is expected next year (stock image)

The idea, floated by Liz Truss in her leadership campaign, would allow couples to transfer their personal tax allowance, currently worth £12,570

His comments came as:

  • Labour was split over whether to stick with the radical tax package unveiled by Mr Kwarteng, or pledge to reverse it;
  • Ministers were braced for a backlash over immigration reforms that could allow more skilled workers to come to the UK to fill vacancies;
  • They were anxiously awaiting the reaction of financial traders today after the pound slid to a 37-year low on Friday;
  • Mr Kwarteng moved to reassure the markets by pledging to bring forward new rules to reduce Britain’s debts in the medium term;
  • Tory MPs warned that Miss Truss could face a Budget rebellion if the pound falls below the value of the US dollar;
  • Labour sources confirmed the party was operating an unofficial non-aggression electoral pact with the Lib Dems;
  • Sir Keir Starmer admitted fossil fuels might be needed to prevent power blackouts;
  • The Labour leader backed the right to strike, as the RMT rail union warned it was ready to take ‘unlawful industrial action’ if strike legislation was tightened.

The scale of Friday’s emergency Budget stunned Westminster, with Mr Kwarteng scrapping the 45p top tax rate, bringing forward a 1p cut in the basic rate of income tax and slashing stamp duty, along with delivering on well-trailed pledges to reverse the rise in national insurance and cancel a planned hike in stamp duty.

The Chancellor yesterday said that tax cuts were vital to avoiding a deep recession as well as kickstarting growth.

The scale of Friday’s emergency Budget stunned Westminster, with Mr Kwarteng scrapping the 45p top tax rate, bringing forward a 1p cut in the basic rate of income tax and slashing stamp duty, along with delivering on well-trailed pledges to reverse the rise in national insurance and cancel a planned hike in stamp duty

He added: ‘When you have a tax system, a tax burden today, which is higher than at any time in the last 70 years, people begin to worry and business begins to worry and says what are the incentives to activity in this economy? How do we invest and grow, why should I set up a business, or why should I employ people?

‘Or why should I even go to work if I’m being taxed to a very, very high degree? And I wanted to change that narrative, I wanted to change that direction.’

In an interview with the US TV network CNN yesterday, the Prime Minister said the Government was ‘incentivising businesses to invest and we’re also helping ordinary people with their taxes’.

Miss Truss dismissed claims that the UK could not afford to pay for tax cuts while also funding a £10billion-a-month scheme to help individuals and businesses with their energy bills. ‘The UK has one of the lowest levels of debt in the G7, but we have one of the highest levels of taxes,’ she said.

Ministers are committed to publishing a new economic forecast by the Office for Budget Responsibility before the end of this year.

Mr Kwarteng is considering setting out his new fiscal rules at the same time.

Sir Keir yesterday said Labour would reinstate the top rate of tax, saying the decision to scrap it was ‘wrongheaded’. But he said Labour would keep the 1p cut in the basic rate of income tax

But a full Budget is unlikely to be held until next year, following the completion of the tax review.

Mr Kwarteng will come under pressure to maintain the decade-long freeze on fuel duty again next year. And he is already facing Cabinet demands to cancel Rishi Sunak’s four-year freeze on income tax thresholds.

One Cabinet source told the Mail: ‘We cannot freeze tax thresholds at a time when inflation is 10 per cent – it is just untenable.’

Sir Keir yesterday said Labour would reinstate the top rate of tax, saying the decision to scrap it was ‘wrongheaded’. But he said Labour would keep the 1p cut in the basic rate of income tax.

Other senior figures said Labour should reverse the entire package. Greater Manchester mayor Andy Burnham described the tax cuts as ‘obscene and immoral’ and a ‘flagrant act of vandalism on the social cohesion of this country’.

Lib Dem Treasury spokesman Sarah Olney said: ‘Kwasi Kwarteng and this Conservative Government are staggeringly out of touch. He showed in his Budget that banks and billionaires come first, while families and pensioners come last. This Government has shown its true colours, making regular people pay in the long run for their economic vandalism.’

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