Chancellor Jeremy Hunt is likely only able to afford the planned cut in national insurance because the continuing effects of fiscal drag are pushing up tax receipts so much, according to guests on the latest edition of the FT Adviser Podcast.
In his Budget this week, Hunt announced a second 2p cut in national insurance after cutting it by the same amount in his Autumn Statement.
Indeed figures from the Office for Budget Responsibility showed the frozen tax thresholds increase tax receipts by £41bn by 2028-29 while the national insurance cuts will only cost Hunt £21bn.
Speaking on the podcast, Matthew Todd, associate director at RSM, said: "I suppose a second cut in national insurance in a six month window, the main rate of national insurance will have dropped by four points between now and the end of last year, that is a quite considerable cut but it is worth noting that the reason he can probably afford it is because the stealth tax from freezing the tax allowances and tax rate bands have increased the tax receipts so much.
"Yes, this is a cut for working people however pensioners and lower earners are not seeing much benefit and may be worse off."
Claire Trott, director at Technical Connection, agreed the frozen allowances would overshadow the cuts to national insurance but she also questioned Hunt's narrative on whether he was making taxes simpler.
She said: "He used the word 'simplicity' in a few places and then proceeded to explain things that sounded horribly complex to the average person on the street. With complexity comes confusion and confusion generally means people are paying too much tax."
The panel also discussed the changes to inheritance tax which would be triggered by Hunt's decision to scrap non-dom status and the effect on pensions of the furnished holiday lettings regime being scrapped.
Addressing the launch of the British Isa, which would give investors an increased allowance of £5,000 to invest in UK equities, Eleanor Ingilby, head of high net worth at Atomos, said: "We're excited for the additional allowance. With the previous decreases we have seen in capital gains allowance - dropping from £12,000 to £6,000 to then £3,000 - clients are really struggling to make their taxable portfolios work for them.
"However the only concern is that if you look at the performance of UK equities over the past, say, 10 years, they have underperformed both global and US equities, so you could potentially be gaining quite a large loss in performance compared to the known 20 per cent capital gains tax. It causes a very interesting dilemma."
The FT Adviser Podcast is available on Spotify, Apple Podcasts, Acast, Google Podcasts and most major podcast platforms.
