RUTH SUNDERLAND: Stealth taxes don’t add up

Rishi Sunak’s push to improve the country’s numeracy skills could have unintended consequences for the prime minister.

Perhaps if voters were equipped with better math skills, they would be more aware of the sneaky ways he and the Chancellor are pulling our pockets.

Stealth taxes to supplement the national treasury have become a signature style under Sunak and should be of more concern to voters than his former non-dom wife’s personal tax schemes.

Instead of transparently raising income tax rates, Sunak and Jeremy Hunt have opted for ‘fiscal drag’ – freezing thresholds and benefits. This creates a tax grab of epic proportions.

Millions of people will be pulled into the net income tax and higher rate brackets. It will generate billions of pounds in additional revenue in the years to come.

The pain for taxpayers will intensify as long as inflation remains high and wages rise to keep pace with prices, meaning people will pay more in taxes even though their living standards may have fallen.

When Sunak first went down this route in March 2021, he imposed a four-year freeze that was expected to raise £8bn. The Center for Economics and Business Research estimated it at nearly £40 billion when inflation started.

Hunt has extended the Big Freeze for a further two years and lowered the threshold for the 45 per cent income tax rate from £150,000 to £125,000. This is a Corbyn-esque populist move that won’t hurt the really wealthy, but will penalize about 800,000 moderately wealthy professionals whose incomes are already heavily taxed.

Other thresholds have been frozen for years, including for inheritance tax (IHT). This has stalled at £325,000 since 2009 with an additional fee of £175,000 for those who leave property to children or grandchildren. IHT’s haul is, unsurprisingly, at an all-time high.

The pension’s ‘lifetime benefit’ – the amount people are allowed to have in their pot before being taxed at a penalty rate on the excess – has been frozen at just over £1 million.

According to the specialist magazine Investors Chronicle, if the original cap of £1.5 million in 2006 was linked to inflation, the grant would exceed £2.3 million – a drop of £1.2 million in real terms.

Put it together and this is a disincentive to work and earn more, leave an inheritance or save for old age. The stealth principle is also applied in rescue operations of bankrupt energy companies. During the 2008 financial crisis, it was bittersweet that taxpayers financed a lifeboat for reckless banks, but at least the process and amounts were transparent.

As The Mail on Sunday has revealed, the energy bailout has been approached underhandedly by hiding the costs in fixed charges on the energy bill.

It was only after days of digging that my colleagues managed to get a breakdown of these costs. The cost of bailing out bankrupt companies is one-fifth of today’s total electricity fixed costs, not counting the £6.5bn it would take to bail out Bulb.

The costs of rolling out smart meters are also included in the standing charge: 7 percent of the standing charge for electricity and 2 percent of the gas tax.

These magic tricks will eventually erode confidence. People have a right to know how their own money is taxed and used. There is no excuse for politicians and regulators to act like the Artful Dodger. Time to refresh the old arithmetic.