CHANCELLOR Jeremy Hunt offered voters tax cuts in a bid to woo them back to prime minister Rishi Sunak's Tories ahead of an expected 2024 election, slashing the emergency reserves in the public finances to the bone.
Hunt said he was reducing the rate of social security contributions (NICs) paid by workers by two percentage points for the second time in just over four months, which would put an average of £900 in the pockets of workers a year.
"Of course, interest rates remain high as we bring down inflation," he said in Wednesday's (6) annual budget speech - possibly his last big fiscal statement before the election.
"But because of the progress we've made, because we are delivering the prime minister's economic priorities. We can now help families not just with temporary cost of living support but with permanent cuts in taxation," he told parliament.
Hunt announced other measures to help voters including a latest freeze on fuel duty, the extension of a freeze in duty on alcoholic drinks until February next year, and the continuation of a support programme for low-income households.
The government's budget forecasters estimated that he now had just under £9 billion of "fiscal headroom", Hunt said - the room available to him for future spending or tax cuts while still meeting his target of bringing down Britain's tax burden at the end of a five-year period.
Paul Johnson, the head of the Institute for Fiscal Studies think tank, said Hunt's plans were dependent on borrowing forecasts that showed the budget deficit narrowing sharply.
"Take this with a pinch of salt," Johnson said on social media platform X. "Will depend on implementing extremely tight spending plans which will imply cuts for many public services."
To help make his sums add up, Hunt extended by one year a windfall levy on energy firms' profits and said he would charge tax on "non-domiciled" people living in Britain for more than four years on their income from abroad.
The opposition Labour has proposed similar measures.
Hunt said Britain's budget forecasters were now forecasting the economy would grow by 0.8 per cent this year after entering a recession in the second half of 2023.
The new figure for growth was slightly stronger than the 0.7 per cent projected in the previous outlook for 2024, published by the Office for Budget Responsibility (OBR) in November.
The OBR now projects economic output to expand by 1.9 per cent in 2025 and by 2 per cent in 2026, Hunt said, compared with its previous expectations for growth of 1.4 per cent and 2 per cent in 2025 and 2026.
Hunt and Sunak have promised voters they will get the economy growing more quickly as they try to overhaul the opposition Labour's big opinion poll lead.
The pair raised taxes sharply on taking office in 2022 to quell mayhem in the bond market sparked by the sweeping tax cut plans of Sunak's shortlived predecessor Liz Truss.
With Britain's debt burden the heaviest since the 1960s, Hunt has played down calls from within the Tory party for major giveaways. Mindful of how Truss sent markets into a tailspin only 18 months ago, he has promised to stick to his plans for less new borrowing.
But he said in his speech that the fall in inflation from a peak of more than 11 per cent means "we can now help families not just with temporary cost of living support but with permanent cuts in taxation".
Hunt also said the OBR now expected Britain's inflation rate to fall below 2 per cent in the coming months.
(Reuters)
Karan Johar and Smriti Irani
