The Chancellor Jeremy Hunt has hinted at the possibility of tax cuts in the spring Budget. Speaking during his visit to the World Economic Forum, in Davos, Switzerland, Hunt said that countries with lower taxes have more “dynamic, faster-growing economies”.
He said the “direction of travel” indicates that economies growing faster than the UK, in North America and Asia tend to have lower taxes.
“I believe fundamentally that low-tax economies are more dynamic, more competitive and generate more money for public services like the NHS,” he added.
In the Autumn Statement in November 2023, the chancellor reduced national insurance for workers by two per cent and announced tax relief for businesses.
However, the threshold for when workers start paying National Insurance – which is currently set at £12,570 – remains frozen until April 2028. This means more low earners still risk being dragged into paying tax for the first time when they get a pay rise – this is known as ‘fiscal drag’.
Hunt pointed out that inflation was falling faster than the Office for Budget Responsibility (OBR) predicted in its previous forecast at the time of his Autumn Statement.
The government has already cut taxes for businesses that make certain investments; but when asked if personal taxes would follow in the Budget, Hunt was non-committal. He said: “What I can assure you is that we will prioritise economic growth.” He also said he did not draw a big distinction between business and personal tax cuts.
Possible income tax changes
Some pundits are suggesting that Hunt could instead focus on making changes to income tax in the Budget. Tax thresholds normally rise in line with inflation, but they have been kept the same since 2021. Frozen tax thresholds and wage inflation means more people are dragged into a higher tax band when they get a pay rise.
Other parties remained unimpressed by Hunt’s hints at tax cuts.
Liberal Democrat Treasury spokesperson Sarah Olney MP said: “People have been left poorer by years of economic mismanagement under this Government, and none of Jeremy Hunt’s vague promises can change that fact. We urgently need to boost investment in skills and the NHS to get people back into work and the economy growing again.”
