The Guardian understands that Jeremy Hunt plans to cut National Insurance by 2p in Wednesday’s budget, a measure aimed at providing voters with pre-election benefits, but with an even bigger cut after the election. This could mean significant spending cuts.
The British Prime Minister is preparing to announce his second major employment tax cut in a year, following his decision last autumn to cut national insurance contributions by 2p.
Wednesday’s measures will mean average earners will save £450 a year, taking the total to last year’s cuts to up to £900. But the chancellor is considering further cuts to public spending after the election as one way to pay for the tax cuts, despite warnings from economists that such measures would cause a strain on public services. .
Mr Hunt and Chancellor Rishi Sunak have been exploring in recent weeks how to propose tax cuts on the scale announced last year as a way to boost the Tories’ sluggish poll numbers in their final budget before the election. .
Mr Sunak had called on the Chancellor to focus instead on cutting income tax. Tax cuts cost more, but are understood by the majority of voters. Since last year’s national insurance cuts, the party’s lead in public opinion polls has widened by one point, from 19 points to 20 points.
But finance officials said personal tax cuts should focus on working people.
Mr Sunak also seemed satisfied with the fact that National Insurance is a UK-wide tax, unlike income tax, which is partially devolved to Scotland. The First Minister told reporters in Scotland last Friday: “I am acutely aware that the SNP is making life harder for hard-working people by raising taxes, but I want to make life easier for people. “There is,” he said.
Conservatives have been told to prepare quickly for emergency legislation after the budget passes, which is needed to pass the National Insurance cuts.
Mr Sunak promised to cut income tax rates during his time as chancellor, but this never materialized. reversed by hunt He said this in his first statement of autumn 2022, as the government scrambles to undo the damage done by his predecessor Kwasi Kwarteng’s “mini-budget” months ago.
The National Insurance cut would in itself save workers hundreds of pounds a year, but the effect of the tax cut will be outweighed by the Treasury’s decision to freeze salary thresholds for both National Insurance and cash equivalent income tax. right.
Resolution Foundation calculations show that, taking into account the threshold freeze, only those who are paid between £27,000 and £59,000 a year will be paid between £27,000 and £59,000 a year as a result of both the Autumn Statement and Wednesday’s Budget It has been shown to be better. Those who received £16,000 would lose nearly £500 a year, as would those who received more than £60,000.
Government sources said projections provided by the Office for Budget Responsibility last month meant the Chancellor could spend around £13bn before breaking his promise to reduce debt as a share of economic output in five years’ time.
Chancellor Hunt is expected to announce on Wednesday a package of revenue-raising measures that will pay for both the NI cuts, which will cost around £10bn a year, and a further freeze on fuel duty, which will cost a further £5bn.
Measures being discussed include limiting tax relief to non-dom consumers, introducing a tax on e-cigarette products; Tax on short vacationsExtend the energy windfall tax and is increasing Tax on business class tickets.
According to Labour’s calculations, these measures could raise a cumulative further £5bn.
The Prime Minister is also considering lowering public spending forecasts after the election. Forecasts set out after the autumn statement assumed departmental budgets would exceed inflation by 1% annually during the next parliament, but Mr Hunt is considering reducing this to 0.75%.
Such a move would raise between £5bn and £6bn a year. But economists have warned that this means budgets for unprotected departments such as the judiciary, local government and the interior ministry will be cut by around 20% during the parliamentary term.
