Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Chancellor Jeremy Hunt will use the Budget on Wednesday to cut personal taxes, as he scrapes together the money needed to fund a package intended to lift Conservative MPs’ spirits ahead of the general election.
Hunt on Sunday promised to embark on the “long path” to lower taxation, but his room for manoeuvre has been limited by deteriorating economic forecasts, which he confirmed had “moved against us”.
The chancellor has been talking down expectations of big tax cuts, but Tory MPs still hope that he will match the 2p cut in national insurance rates he announced in his Autumn Statement last November, which will cost £10bn a year.
Hunt’s aides confirmed the chancellor would “love to” cut national insurance or income tax by 2p or more, but only if it was affordable.
They said his Budget on March 6 is “Part II” of a tax-cutting process that started in November.
“We’ve always said we would only cut taxes in a way that’s responsible and prudent,” Hunt told the BBC’s Sunday with Laura Kuenssberg programme. Overall tax levels are still rising, due largely to an ongoing freeze in tax thresholds.
Each 1p cut in employee national insurance rates costs £5bn a year, while a 1p reduction in the 20p basic income tax rate costs £7bn. A national insurance cut is seen as a more pro-economic growth measure as it would only benefit workers.
The chancellor has been looking at an “emergency package” of revenue raisers to pay for personal tax cuts, including stealing Labour’s plan to scale back the “non-dom” tax regime, securing between £2bn and £3bn a year.
Also on Hunt’s list of potential revenue raisers are an increase in air passenger duty for business travel, an extension of the windfall levy on oil and gas producers, a tax on vapes and abolishing the furnished holiday let regime, according to those close to the Budget process.
Hunt could raise a further £5bn to £6bn a year if he cuts public spending plans in the next parliament, a controversial idea which has led to claims from economists that he is funding tax cuts now by making “fictitious” promises about the future.
The chancellor is also planning to use the Budget to insist he can make the state leaner and more efficient: he has already announced plans to cut civil service numbers to their pre-pandemic levels.
Hunt has also announced measures designed to increase productivity in the NHS and the police. Opinion polls have suggested the public would prefer higher public spending to tax cuts.
Asked about the prospects for reducing the tax burden, the highest for 70 years, Hunt told the Sunday Telegraph: “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, 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. “Margaret Thatcher, who was the prime minister who inspired me to go into politics, brought taxes down over a decade,” he said.
Meanwhile, Hunt has given £105,261 over the past five years to his South West Surrey constituency Conservative association to help bolster his chances of re-election, the Guardian revealed.
Hunt’s constituency has been affected by boundary changes and he will be defending a new Godalming and Ash seat, which is a top Liberal Democrat target.
Hunt told the BBC that he hoped to continue as chancellor after the general election. His spokesman declined to comment.