Jeremy Hunt Announces Tax Cuts in Pre-Election Budget
In a bid to revive the Conservative Party’s fortunes ahead of the upcoming general election, Chancellor Jeremy Hunt has announced tax cuts for workers. The tax cuts, which will come into effect from April, aim to make the tax system fairer and stimulate the UK economy. However, critics argue that many people will still be worse off despite the cuts.
The announcement comes as the Tories trail behind the Labour Party in opinion polls. Hunt had been under pressure to cut personal taxes in order to gain support from voters. While there were speculations that income tax would be reduced, the chancellor instead opted to slash National Insurance (NI) by 2p in the pound, matching a previous cut made in January.
The NI cut will reduce the rate paid by employees from 10% to 8%, and from 8% to 6% for the self-employed. Additionally, eligibility for child benefits will be extended to around 170,000 families, with benefits being paid in full to those earning up to £60,000 and the threshold for complete withdrawal raised to £80,000.
According to Hunt, the NI cut will save an employee on an average salary of £35,000 around £450 a year. He also expressed his long-term ambition to completely abolish National Insurance when it becomes financially feasible.
To raise revenues elsewhere, Hunt has adopted two of Labour’s flagship policies. He plans to replace the non-dom regime for UK residents whose permanent home is overseas and extend the windfall tax on oil and gas companies until 2029. Labour had intended to use the additional revenue from these policies to fund new breakfast clubs and extra hospital appointments.
However, Labour has criticized the tax cuts, highlighting that freezes in tax thresholds will result in many people paying more income tax over time. They argue that despite the cuts, taxes are still at a 70-year high and people have experienced a decline in living standards in recent years.
The Institute for Fiscal Studies, a think tank, has analyzed the combined effect of the NI cuts and the threshold freezes. They concluded that those earning between £26,000 and £60,000 will be better off, while those earning less than £25,000 will be worse off. Those earning between £60,000 and £120,000 will see little difference.
In addition to changes in child benefit thresholds, Hunt plans to consult on a new system that uses household income rather than individual income by April 2026. The current system has been criticized for being unfair as it is based on the highest-earning parent’s income rather than the combined salary of a family.
The Budget announcement comes at a time when the UK economy is facing sluggish growth and recently experienced a recession. However, Hunt remains optimistic and believes that the economy will soon turn the corner. The Office for Budget Responsibility, the government’s independent forecaster, also predicts that inflation will fall to the target rate of 2% by the end of June.
The Budget includes several other measures such as the extension of the Household Support Fund, a freeze on alcohol duty until February 2025, the introduction of a new tax on vaping products from October 2026, and an increase in tobacco duty. Additionally, tax breaks for owners of holiday let properties will be scrapped.
The decision to extend the windfall tax on energy firms has faced backlash from some Tories, including Energy Minister Andrew Bowie and Scottish Conservative leader Douglas Ross. They describe it as “deeply disappointing” and argue that it could harm the oil and gas sector.
On public services, Hunt announced that day-to-day spending will increase by 1% above inflation every year until 2029. However, this could result in significant budget cuts for departments such as justice and local government, as health and schools have protected budgets. Hunt emphasized the need for the public sector to improve efficiency and deliver better value for taxpayers. He also announced a £3.4 billion investment in modernizing NHS IT systems to free up time for healthcare professionals.
Overall, Jeremy Hunt’s pre-election Budget aims to boost the Conservative Party’s popularity by implementing tax cuts and adopting some of Labour’s policies. However, critics argue that the tax cuts may not benefit everyone and that freezes in tax thresholds will still result in increased income tax payments for many individuals. The Budget also includes measures to support struggling households, increase public spending, and invest in technology for improved public services.