"However, there’s an awful lot of inflationary pain to get through between now and then, and while this tax cut may be a light at the end of the tunnel, it’s a pinprick of light at the end of a very long and increasingly dark tunnel."
It is also worth remembering that people in Scotland will not be eligible for the income tax cut, as the devolved nation sets its own income tax rates.
Christine Cairns, tax partner at PwC, says the true impact of the future decrease of the basic rate tax rate for middle income earners "will need to be assessed against the impact of the freezing of the income tax bands until 2026".
The chancellor refrained from tinkering with income tax thresholds, which have been frozen for four years from 2022-23 to 2025-26.
A U-turn on the policy, which was announced in the Spring 2021 Budget, would have brought much needed reprieve to working families struggling to pay their fast growing bills.
The policy is expected to represent a £20.5bn tax hike, compared to increasing thresholds with inflation. It was initially expected to represent a tax rise of £8bn but inflation has added £12.5bn to the mix.
“The freeze on tax thresholds should be ended,” said Tim Stovold, head of tax at Moore Kingston Smith, ahead of the Spring Statement. “This is in effect a tax rise by stealth and at a time of rising inflation is hugely unfair – particularly to the low paid.”
Meanwhile chartered financial planner at Fairstone, Angela Marson, points out while the tax cut will put more money in the hands of working people it will also have an impact on pension contributions that attract tax relief, "if tax is being paid at 19 per cent, then it follows that tax relief on such contributions will attract a lower rate too".
It is for this reason that Jon Greer, head of retirement policy at Quilter, is urging people to top up their pension contributions now, while the current rate of relief is still in place.
"[The cut] will be of benefit to pensioners who pay income tax on earnings or pension benefits, but do not pay any national insurance contributions.
"As a result, those approaching retirement should if at all possible not forgo pension contributions as putting money into a pension today means you get higher tax relief than when you take it out in a years’ time."
This comes against the backdrop of rising pension withdrawals, which are up 20 per cent as the cost of living has started to affect people's finances. A total of £8.3bn was flexibly withdrawn from pensions between April and December 2021, 10 per cent more than in the same period the year before, official data shows.
