UK chancellor signals he wants more tax cuts before election

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UK chancellor Jeremy Hunt has signalled he wants to cut taxes further in the coming months and left open the possibility of holding two Budgets ahead of this year’s general election.

Hunt said on Thursday that he did not yet have the economic and fiscal forecasts that would be needed to frame his March Budget, but he believed that low-tax economies were “more dynamic and more competitive” and that this was the direction he was heading in.

The chancellor added that the question of giving an Autumn Statement on top of the March Budget would hinge on when UK Prime Minister Rishi Sunak decided to hold the general election. 

One senior government figure said “squeezing in” an Autumn Statement between the next Conservative party conference and a November election would allow the party to highlight tax cuts at three successive fiscal events.

There are auspicious precedents for such a move: John Major, who won an unexpected election victory in April 1992, announced a vote the day after his chancellor Norman Lamont introduced a 20p income tax rate in his March Budget.

Speaking to a group of reporters during a visit to the Swiss resort of Davos, Hunt said: “We look around the world and we notice that the economies that are growing faster than us — North America, Asian economies — tend to have lower taxes . . . So that’s the direction of travel we’d like to go in, but it’s too early to know the extent to which we’ll be able to do it.”  

Hunt in November unveiled cuts to business and personal taxes of about £20bn in a bid to bolster growth, but that failed to stop a steady increase in the UK’s projected tax burden that results from personal tax thresholds being frozen.

With the ruling Conservative party trailing Labour by about 20 points in the polls, the chancellor is under intense pressure from within party ranks to unveil fresh cuts to individual taxes ahead of the election.

The tax-cutting measures outlined in the November Autumn Statement, alongside other budgetary decisions including on welfare spending, left the chancellor with £13bn of “headroom” against his key fiscal rule, which requires the ratio of public debt to GDP to be falling in five years’ time. 

That could leave Hunt with some budgetary wiggle room for further tax cuts depending on how fiscal and economic forecasts from the Office for Budget Responsibility evolve in the coming weeks. 

Hunt stressed that he had not yet received the first draft of those forecasts as he prepared for his upcoming Budget, but some economists have pointed to falling interest rate expectations as a tailwind for the chancellor, potentially doubling that headroom depending on how other key variables evolve. 

Asked whether it would be fiscally responsible to cut taxes further at a time when the UK’s underlying debt-to-GDP ratio is heading above 90 per cent, Hunt said this depended on how the tax reductions were funded. 

“If you fund them by significantly increasing borrowing, then you are just sending the bill to future generations,” he said. “But if it’s because of the inherent growth of the economy and you can still see debt falling over the five-year period, then it can be very pro-growth.”

Asked if his priority would be tax cuts for businesses or households, Hunt said he did not draw such a firm line between the two categories, pointing out that the national insurance cut announced in November was expected to boost the workforce and help fill vacancies, as well as easing pressure on families. 

“What I can assure you is that we will prioritise economic growth. I don’t make quite the same distinction as you do between business tax cuts and personal tax cuts,” he said. 

When it came to the possibility of holding more than one Budget round this year, Hunt said this would depend on when Sunak decided to hold the election and that he did not yet know what the decision would be.

He said the UK was required to hold two “fiscal events” in a year, adding: “We will see where we get to after the spring.” 

A Treasury figure said any such decision would be made by Sunak and his team rather than by Hunt: “It’s entirely a decision for the prime minister when to call an election.” 

Hunt told the Financial Times late last year that he expected 2024 to be a better year for the economy, adding there was a “reasonable chance” that if inflation continued to fall, the Bank of England might start reducing interest rates.

Since then efforts to curb inflation hit a setback, as official figures showed an uptick in the rate of growth of the consumer prices index to 4 per cent in December from 3.9 per cent the previous month. 

Asked about the figures, Hunt said that while inflation was falling it would never do so in a straight line, adding: “I think it will continue to fall”. He added: “I’m confident that we are heading in the right direction.”