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Chancellor Jeremy Hunt has warned ahead of Wednesday’s Budget that there is “a long path” ahead to cut Britain’s tax burden, as he admitted that recent official fiscal forecasts had made his task harder.
Hunt, who has tried to scrape together enough money to fund significant personal tax cuts on March 6, said on Sunday: “We’ve always said we would only cut taxes in a way that’s responsible and prudent.”
The chancellor has been talking down expectations of big tax cuts in recent weeks, but Tory MPs still hope that he will surprise on the upside, possibly matching the 2p cut in national insurance rates he announced in his Autumn Statement.
Hunt’s allies have indicated the chancellor would like to cut national insurance or income tax rates by 2p in the Budget, but have warned that the tight fiscal situation rendered that extremely difficult.
Each 1p cut in employee national insurance rates costs £5bn, while a 1p cut in the 20p basic income tax rate costs £7bn. An NI cut is seen as a more pro-growth measure as it would only benefit workers.
“We’ve always said we would only cut taxes in a way that’s responsible and prudent,” Hunt told the BBC’s Laura Kuenssberg. “The most un-Conservative thing I could do would be to cut taxes by increasing borrowing.”
Hunt said he would do “the right thing in the long-term interests of the country”, including investing hundreds of millions of pounds to boost productivity in areas such as the NHS and the police.
To raise funds for headline-grabbing tax cuts, Hunt has looked at stealing Labour’s policy of scaling back or axing the “non dom” tax regime, raising between £2bn and £3bn a year. He declined to rule out such a move on Sunday.
Extending the windfall tax on oil and gas companies, another Labour policy, would raise more than £10bn over five years, according to the opposition party.
Hunt has also been looking at scaling back public spending assumptions in the next parliament, even though that would leave him exposed to claims by economists and Labour that he is pencilling in more austerity.
The Financial Times reported last month that Treasury officials were considering reducing projected departmental spending rises after 2025 from 1 per cent to 0.75 per cent a year, releasing £5bn to £6bn for tax cuts.
Other smaller tax-raising measures are expected. The chancellor is likely to raise £300mn from abolishing the furnished holiday lets regime, a move first reported by The Sunday Times.
The move is supported by many Tory MPs, who believe it will slow down the trend of residential landlords switching to holiday lets.
Hunt confirmed that recent forecasts from the Office for Budget Responsibility had “moved against us”, reducing the amount of headroom he has against his self-imposed borrowing rules.
The chancellor told The Sunday Telegraph: “We don’t have as much of a positive outlook as we had at the end of the Autumn Statement.”
At the time of that fiscal event last November, the OBR said Hunt had retained a £13bn cushion against his fiscal rule, which says debt must be falling as a share of GDP year-on-year in five years’ time.
The chancellor’s aides have indicated Hunt could cut that cushion to £6bn next Wednesday, the lowest fiscal buffer since the OBR was created in 2010.
Asked about the prospects for reducing the overall tax burden, currently the highest for 70 years, he said: “I’m going to be honest with people on Wednesday that it’s going to be a long path to bring it down.”
Hunt’s Budget message to voters will be that the Conservative government’s plan is working and that inflation is falling and growth is starting to return after the economy dipped into recession at the end of 2023.
He suggested voters should show patience over tax cuts and give the Tories more time to deliver them. “Margaret Thatcher, who was the prime minister who inspired me to go into politics, brought taxes down over a decade,” he said.