(Bloomberg) -- The UK’s governing Conservatives would keep income tax thresholds frozen until 2028 if they stay in power, Chancellor of the Exchequer Jeremy Hunt said, confirming an effective tax rise on earnings and undermining the core message in the Tory election campaign that is built around tax cuts.

Both Hunt and Tory premier Rishi Sunak, his predecessor as Britain’s finance minister, have opted to keep most income tax bands unchanged since 2021 rather than raise them in line with inflation. They argued the government needed to raise revenue to pay for spending during the Covid-19 pandemic. 

 

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The so-called fiscal drag means more income is brought into a higher tax band, allowing the government to take a higher share of people’s income. It is seen as a stealth tax because it is not announced as a tax increase.

The problem for Hunt is that the Tories like to paint themselves as the party of low taxation, regardless of the fact that the UK’s tax burden has soared on his watch. Sunak and his chancellor have spent the early days of campaigning accusing the poll-leading Labour Party of planning to raise taxes.

If Sunak’s Tories win the July 4 election, they will stick to the existing plan to freeze income tax thresholds until 2028, Hunt said. After that, the thresholds will be lifted, he added, insisting the overall direction of travel under the Tories is that taxes will come down over time.

“The tax rises that happened as a result of the pandemic and the energy shock — these two giant shocks — will stay for their allotted time period,” Hunt told BBC Radio 4. “I can absolutely undertake that the threshold freeze that we introduced until 2028 will not continue under that.”

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His comments effectively confirm that workers will face three years of stealth income tax rises after the election if the Conservatives win.

It also gave Labour the political space to say it would do the same, and Keir Starmer confirmed his poll-leading party would also freeze the thresholds for the same period if he becomes prime minister.

Hunt still accused Labour’s would-be chancellor Rachel Reeves of plotting to raise other taxes. Reeves reiterated that Labour has ruled out rises to the headline figures of income tax, the national insurance payroll tax, or the value-added tax, a sales levy.

Both major parties are under pressure to explain how they would find money to spend on Britain’s ailing public services while trying to convince voters they would not raise taxes. The Institute for Fiscal Studies has accused both of not being honest about the state of the public finances.

Polling suggests voters think taxes will go up whichever party wins on July 4.

(Updates with Starmer saying Labour will also freeze tax thresholds in eighth paragraph.)

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