- By Paul Seddon and Becky Morton
- Political reporters
March 6, 2024
Updated 2 hours ago
video caption,
Hunt: Tax revenue will be higher because the economy will grow
Jeremy Hunt has announced cuts to taxes paid by workers from April in a bid to galvanize the Conservatives ahead of this year's election.
In the last spring Budget before the election, the Chancellor cut National Insurance by a further 2p in the pound, matching an earlier cut in January.
He said it would make the tax system fairer and help revitalize the UK economy.
But Labor described the announcement as a “sham” and many people would still have been left worse off.
Chairman Sir Keir Starmer said he supported the cut but it would not offset the freeze on tax thresholds, which would result in some people paying more income tax over time.
He added that taxes were at their highest level in 70 years and people had suffered an “unprecedented collapse” in their living standards in recent years.
Mr Hunt has been under pressure to cut personal taxes as the Tories trail Labor significantly in opinion polls ahead of the next general election, expected to take place later this year.
The January National Insurance cut, announced in last year's Autumn Statement, failed to deliver the poll boost Tory MPs were hoping for.
This had fueled pre-Budget speculation that the Chancellor would opt for a cut in income tax, which was likely to have a greater political impact among voters.
Nevertheless, he announced a widespread 2p cut to National Insurance (NI), reducing the rate for employees from 10% to 8% and for the self-employed from 8% to 6%.
It also expanded eligibility for child benefit to around 170,000 families, with those earning up to £60,000 receiving the full benefit and raising the threshold for full receipt to £80,000.
Mr Hunt said moving to NI would be worth £450 a year to an employee earning an average salary of £35,000.
In an interview with BBC political editor Chris Mason, he added that his long-term goal was to abolish social security completely, but that this would only happen if it was “affordable”.
The party had earmarked additional income from the policies to fund new breakfast clubs and additional hospital appointments.
Labor has stressed that freezing thresholds for starting to pay income tax until 2028 means the tax burden will continue to rise for many, and also flagged “stealth” increases in council tax.
Speaking in the House of Commons, Sir Keir said the chancellor was trying to “give with one hand and take even more with the other”.
He added: “The whole country can see exactly what is happening here. They know a Tory fraudster when they see one.”
Liberal Democrat leader Sir Ed Davey called the budget a “last-ditch attempt by the Conservative Party to stay in power,” adding that it “smacks of desperation.”
“I have never seen a government deliver weaker public services, higher taxes and no growth at the same time,” he added.
Former ministers Suella Braverman and Sir David Davis both expressed regret that the Chancellor had not decided to cut income tax.
Ms Braverman, who was sacked by the Prime Minister last year, also said frozen income tax thresholds had resulted in “millions of low- and middle-income workers being forced to pay higher taxes” while “unprecedented levels of low-wage and low-skilled employment.” “Migration” prevailed and damaged the economy.
“The government could have solved both problems today, but didn’t,” she said.
Tax threshold changes
The Institute for Fiscal Studies, a think tank, says the combined effect of both NI cuts and the threshold freeze between 2021 and this April means those earning between £26,000 and £60,000 will be better off.
However, people earning less than £25,000 will be worse off, while those earning between £60,000 and £120,000 will see little difference.
As well as changes to child benefit limits, the Chancellor said he would consult on moving to a system that takes household income rather than individual income into account by April 2026.
The current system has been criticized as unfair because the threshold is based on the highest-earning parent rather than a family's total salary.
This means a family where two parents earn £50,000 each can receive the full amount, while a single person earning £60,000 would receive nothing.
'Go around the corner'
The budget comes against a backdrop of sluggish economic growth as the country fell into recession late last year.
The government's independent forecaster, the Office for Budget Responsibility, also expects inflation – with interest rates rising – to fall to the 2% target before the end of June.
This suggests the government may wait until the autumn to call an election, which must take place by the end of January 2025, rather than calling an election in May.
By then the economic situation should have improved and another opportunity for tax cuts could arise.
Other measures announced in the budget:
- The Household Support Fund, which helps people facing cost of living pressures and was due to expire in four weeks, will remain in place for another six months
- An alcohol tax freeze that was due to end in August will be extended until February 2025
- A new tax on e-cigarettes will be introduced from October 2026
- At the same time, tobacco tax will increase by £2.00 per 100 cigarettes to ensure vaping remains cheaper
- Fuel duty will be frozen again, with the 5p cut in fuel duty on petrol and diesel due to end later this month retained for another year
- Tax relief for holiday property owners will be abolished.
The move to extend the windfall tax to energy companies has sparked a backlash from some Tories. Energy Secretary Andrew Bowie and Scottish Conservative leader Douglas Ross both described it as “deeply disappointing”.
SNP business spokesman Drew Henry also criticized the move, adding it meant both the government and Labor were “intent on pulling the rug out from under the industry”.
He added that a “just oil and gas transition” would not be possible “if we phase out the sector overnight.”
Turning to public services, the Chancellor said he would keep planned increases in daily spending at 1% above inflation each year until 2029.
However, as some ministries such as health and schools have protected budgets, this means that others such as justice and local government could see significant budget cuts.
Mr Hunt said the public sector also needed to improve its efficiency to deliver better value to taxpayers.
He announced investment in new technology to free up time for doctors, nurses and police, including £3.4 billion to modernize NHS IT systems.
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