British Chancellor Jeremy Hunt is expected to make a 2p cut to national insurance central to his budget, which he said would deliver “more opportunity and more prosperity” to the UK.
The chancellor promised “permanent cuts in taxation” that would bring “higher growth” as he seeks to woo voters ahead of this year’s general election.
Mr Hunt looks likely to announce a cut in national insurance by a further two percentage points, matching a cut in the autumn statement.
The change could save the average worker in the UK £450 a year, adding up to £900 when combined with last year’s move.
Mr Hunt was widely reported to have defied calls from some in Downing Street and many Conservative MPs to reduce income tax, which is more expensive but better understood by many voters.
They were concerned another national insurance reduction would not be enough to boost Prime Minister Rishi Sunak’s party’s dire poll ratings, after the last one failed to move the dial.
Mr Hunt was said to have taken the decision after the fiscal watchdog the Office for Budget Responsibility downgraded the amount of fiscal headroom available for delivering tax cuts or spending commitments, within the Chancellor’s self-imposed rule of having debt falling as a share of gross domestic product (GDP) by 2029.
An income tax cut, previously promised by Mr Sunak, could reportedly still feature in a fiscal event later this year or in the Conservative election manifesto.
In comments ahead of his budget, Mr Hunt said: “Because of the progress we’ve made because we are delivering on the prime minister’s economic priorities we can now help families with permanent cuts in taxation.
“We do this not just to give help where it is needed in challenging times. But because Conservatives know lower tax means higher growth. And higher growth means more opportunity and more prosperity.”
He added that growth “cannot come from unlimited migration”, but “can only come by building a high-wage, high-skill economy”.
With polls suggesting Labour is on track to win the general election, Mr Hunt will use his Budget to set electoral dividing lines with Keir Starmer’s party
But shadow chancellor Rachel Reeves said Labour is “now the party of economic responsibility” as she accused the Tories of overseeing “fourteen years of economic failure”.
She said: “Taxes are rising, prices are still going up in the shops and we have been hit by recession. Nothing the Chancellor says or does can undo the economic vandalism of the Conservatives over the past decade.”
Mr Hunt has said he will not pay for tax cuts with borrowing, meaning a combination of spending cuts and tax rises elsewhere will be necessary.
Tax rises could include a levy on vapes, a tax raid on owners of short-term holiday lets, and the scaling back of non-dom tax relief, a policy previously advocated by UK Labour and opposed by ministers.
Mr Hunt could shave more off his post-election public spending plans to fund giveaways, reducing overall departmental spending, currently pencilled in to rise by 1% per year in real terms after 2025, to 0.7%.
Experts have warned of a possibly implausible spending squeeze after the election that could harm strained public services.
In a sign he could go down that path, Mr Hunt defended austerity, saying it was only because the British government “reduced the deficit” that it could “generously” help people during the pandemic.
