Jeremy Hunt is expected to announce a 2p cut to National Insurance when he delivers his Budget on Wednesday. This plan, which matches a cut announced in the Autumn Statement, aims to provide “permanent” tax cuts and stimulate the flagging economy.
However, Labour argues that any reductions would be nullified by the government’s previous decision to freeze tax thresholds, resulting in a pay rise potentially pushing individuals into higher tax bands.
While there is pressure, particularly from Tory MPs, to cut taxes currently at a historic high, some Conservative MPs are concerned that cutting National Insurance may be less well understood by many voters and therefore less politically advantageous.
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They also argue that the initial cut to National Insurance did not improve the Conservatives’ political fortunes, which is a crucial consideration with the general election expected this year.
National Insurance contributions are paid by employees, the self-employed, and employers based on their earnings. The focus of Wednesday’s cut is expected to be on employees, similar to the Autumn Statement when the main rate was reduced from 12% to 10%.
A further 2p cut would result in a yearly saving of approximately £450 for someone earning a full-time salary of £35,000.
There have been reports that the Budget may also include a headline-grabbing cut to income tax, despite the risk of fueling inflation. The Resolution Foundation suggests that even a 1p cut to the main rate of income tax would cost £7bn this year.
Jeremy Hunt, ahead of his Budget speech, stated that the government can only provide “permanent cuts in taxation” due to progress made in reducing inflation. He emphasized that lower taxes lead to higher growth, which in turn means more opportunity and prosperity.
However, these tax cuts are being proposed against a backdrop of sluggish economic growth, with the country falling into recession at the end of last year. The Chancellor has also emphasized that his scope for cutting taxes is limited due to the rise in the cost of borrowing.
Labour, on the other hand, believes that the government has more room for manoeuvre and may also cut income tax. However, they argue that the Budget cannot undo the economic damage caused by the Conservatives over the past decade.
When responding to the Budget, Labour leader Sir Keir Starmer will argue that tax cuts now still leave people worse off due to the freezing of tax thresholds, resulting in many people paying higher rates of tax than before.
Alongside the expected cut to National Insurance, Jeremy Hunt is set to freeze fuel duty for another year, as it has not increased since 2011.
In addition to these measures, Mr Hunt will use his Budget to urge councils to reduce their spending on diversity schemes and consultants. This comes as councils across the country are struggling to balance their books, with some announcing significant cuts to services.
The Local Government Association dismisses attacks on diversity schemes as a “distraction,” highlighting that councils spend minimal amounts on such projects.
The chancellor is also considering other measures to raise revenue, including a new tax on vapes and scrapping non-dom tax status. Non-domiciled individuals are UK residents whose tax home is abroad.
Under the current system, they do not have to pay UK tax on income earned overseas. Labour has pledged to abolish non-dom status and allocate the generated funds to schools and the NHS.
However, if the party supports any tax cuts announced by the chancellor, questions arise regarding how some of their spending pledges would be funded.
The likely impact of the measures expected in the Budget is a topic of discussion in many newspapers. The Daily Express describes Mr Hunt’s plans as a “tax cut gamble” aimed at delivering a “feelgood package designed to ease families’ finances.”
The Financial Times notes that the Budget comes as the Tories eye a tough election and that Conservative MPs are looking for a plan to drag Britain out of recession.
The Daily Telegraph speculates that the tax cuts have sparked rumours of an election in May, while the Guardian suggests that they will come at the expense of public services and force the next government to make further cutbacks.
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