Mr Zahawi is Prime Minister Boris Johnson’s third chancellor in as many years, and he has a monumental task ahead of him. Although a number of items are high on his agenda, the Chancellor faces increasing pressure to take immediate action on the cost of living crisis.
One option that has been mooted is for Mr Zahawi to unfreeze income tax brackets, which many have described as a “stealth tax”.
His predecessor Rishi Sunak has already announced the government’s intention to cut income tax from 20% to 19%, but that will only happen from 2024, and experts have called for faster action .
Laura Suter, head of personal finance at AJ Bell, said: “In fact, over five years, the decision is dashed by government plans to freeze income tax brackets until 2026 – which is a much bigger tax bite than many realize.
“If Mr. Zahawi is serious about helping to lower the cost of living, he needs to revisit the income tax bracket freeze.
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Based on forecasts from the Office for Budget Responsibility (OBR), the platform estimates that the personal allowance would reach £15,300 in 2026/27 if increased in line with inflation.
However, if frozen until 2025/26, it would be just £12,800.
Rachael Griffin, tax and financial planning expert at Quilter, suggested that any proposals from Mr Zahawi may never see the light of day if the government subsequently collapses.
However, if the holder manages to hold on, he will face tax pressures.
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Ms Griffin said: ‘If Zahawi proves able to stay in his role, it’s important he doesn’t underestimate the electorate.
“They are quickly becoming aware of the stealth taxes employed by the current government, such as the various frozen tax thresholds which are causing more and more people to pay income tax, pensions and inheritance tax.
“The government needs to make public spending much more efficient before it starts collecting more taxes.”
In the wake of what has been a torrid time for the party, restoring public trust and goodwill is likely to be high on the agenda.
The new chancellor has already expressed an appetite for lower taxes, in line with his party’s more traditional values.
He has already said he will review government plans to raise corporation tax from 19 pence to 25 pence.
Additionally, he told Sky News there was “nothing on the table” when it comes to tax cuts.
Speaking to presenter Kay Burley, he said: “The most important thing is to rebuild the economy after the pandemic and get growth and tax cuts going again.
“Today we are offering the first tax reduction in ten years. I am determined to do more.