Jeremy Hunt has hinted at the possibility of significant tax reductions in his upcoming budget in March. This is viewed as a crucial chance for the Conservative party to regain ground against Labour’s strong lead in public opinion.
The chancellor has publicly addressed his budget strategy and stated that unless there is unforeseen negative news, he will comply with the request from Conservative MPs for a significant giveaway before the anticipated autumn national election.
During his attendance at the World Economic Forum in Davos, the chancellor mentioned that when looking at other countries with faster-growing economies such as North America and Asia, they typically have lower taxes. He believes that economies with lower taxes are more competitive and dynamic, resulting in more revenue for public services such as the NHS.
“We aspire to move in that direction, but it is premature to determine our course of action.”
Hunt’s precise room for manoeuvre will only become clear when he receives forecasts for the economy and the public finances in the coming weeks, but the picture has brightened since last November’s autumn statement due to falling inflation and expectations of interest rate cuts from the Bank of England.
But his comments now extend beyond those he made before. Just a fortnight ago, while talking about the 2% reduction in national insurance highlighted in his autumn statement, he informed journalists: “It marks the beginning of a progression. As the chancellor, if I have the means, I will continue to push for more. I am still unsure if I have the resources to do so.”
The chancellor is facing demands to decrease taxes as the Office for Budget Responsibility predicts they will reach their highest point since the 1940s. Efforts to rectify the financial impact of the Covid pandemic and the energy bill subsidies following Russia’s invasion of Ukraine have led to a prolonged freeze on tax allowances and thresholds.
Hunt is predicted to prioritize income tax during the budget on March 6th, following his previous actions of giving permanent tax breaks for business investments and reducing national insurance. He did not dismiss the potential for another set of measures before the election, but this decision will depend on when Rishi Sunak schedules the poll.
The prime minister has not yet chosen a date for the election, or if he has, he has not informed me. According to the law, there must be two fiscal events every year. We will assess our progress after the spring budget.
A prominent Conservative party member proposed that Hunt should prioritize reducing national insurance. “The message about hard work paying off was well received during the budget. A cut in NI benefits working individuals, while an income tax cut benefits everyone, regardless of their income source. It is widely acknowledged that people are currently being taxed too heavily.”
A source close to the chancellor revealed that Hunt is contemplating implementing tax reductions during the budget and an early autumn statement before the election. The source stated, “It would be highly impactful to go into the elections having implemented tax cuts in three consecutive fiscal events.”
According to sources, Hunt is hesitant to decrease inheritance tax before the election because he believes it will not be as appealing to voters as lowering income tax or national insurance. The source stated that inheritance tax may be addressed in the party’s manifesto, if at all.
Rachel Reeves, the opposition’s finance spokesperson, has stated that a Labour administration would nullify any reduction in the estate tax, stating that it would not “be the appropriate focus.”
This week, she stated that if there are funds for reducing taxes, the focus should be on benefiting the majority of employed individuals, rather than just the 3.7% who are set to receive an inheritance.
Additionally, Reeves has stated that the Labour party would back any reductions in income tax proposed by the government during the spring budget, as long as they adhere to the fiscal regulations set by her party.
Reeves stated that he supports lowering taxes for working individuals, which he has been open about. He acknowledges that they are currently at their highest point in the last 70 years. However, he emphasizes that he will not take any actions that would violate the fiscal guidelines he has established.
According to Hunt, the OBR’s evaluation of the budget’s impact on public finances may be subject to change until the last moment. However, he also disclosed that he personally believes that implementing more competitive taxes would lead to a more prosperous economy.
When questioned about the decision to decrease taxes while the debt as a percentage of the country’s income was nearing 100%, he responded by stating that it all depends on how the tax cuts are financed. If there is a considerable rise in borrowing to cover the costs, it essentially means that the debt will be passed on to future generations.
“If the economy experiences natural growth and we witness a decrease in debt over a span of five years, it can greatly support economic growth.”
On Thursday, Hunt flew into Davos on a private plane after participating in a vote on the government’s Rwanda legislation in the House of Commons.
During his time away, Reeves presented his case for the backing of the gathered business executives. He held a breakfast event arranged by JP Morgan, a US bank, and participated in a discussion panel on Labour’s initiatives to stimulate growth.
On Thursday, Rishi Sunak restated that his main focus is on tax cuts. He informed reporters at Downing Street that his priority is to responsibly reduce taxes, while also stating his preference for prime ministers to avoid speculating on future budgets.