Budget 2024: UK taxes set to reach highest level since 1948 despite Hunt cuts to national income

Despite Jeremy Hunt cutting the national insurance contributions budget by 2p, Britain will still go into the next general election with tax levels at their highest since 1948 and public spending likely to be hit after polling day Threat of new austerity.

The chancellor has used a combination of increased borrowing and a series of hidden taxes to fund the £14bn giveaway scheme and has said he aims to phase out NICs for employees and the self-employed.

But the lack of any real surprises in the budget – apart from raising the child benefit threshold to £60,000 – appears to significantly reduce the likelihood of a snap election in May, when the UK will still officially be in recession.

Many Conservative MPs had hoped a high-profile budget would finally make people feel better and help close the gap with Labor in the polls, setting the stage for an election later this year.

However, living standards remain squeezed, with millions facing being dragged into higher tax brackets, while the Office for Budget Responsibility (OBR) suggests incomes are likely to remain below levels at the last election in 2019 by the end of 2019 . this parliament.

Hunt’s much-anticipated 2p cut to national insurance will be funded by scrapping the non-dom rule – a flagship Labour policy – and other revenue-raising measures that will push taxation to levels not seen since the Second World War.

“We will continue to cut National Insurance contributions as we have today so that we can truly deliver on the working wage,” Hunt told MPs. “We have stuck to our plan and set out a budget for long-term growth; it brings more Investment, more jobs, better public services and lower taxes.”

However, Labor accused the Conservatives of ignoring 14 years of economic failure. Party leader Sir Keir Starmer called the budget “a last desperate act by a failed party”.

He added: “The economy is smaller than it was when the Prime Minister came to Downing Street – the textbook definition of recession – and that’s their record. I mean, 14 years later, who do they actually think they feel better?”

Experts say NIC budget cuts and a tax cut of £900 a year for ordinary workers announced last autumn pale in comparison to previously announced tax increases.

Paul Johnson, director of the Institute for Fiscal Studies, said: “When the election comes, tax revenue will account for 3.9% of national income, or about 100 billion pounds, higher than at the last election. This is still a record tax increase in Parliament. “

Hunter raised money through a number of small tax increases on e-cigarettes, tobacco, vacation home rentals, business class flights and non-residents. This allows him to meet his fiscal rules – to reduce debt as a share of GDP – by what the UK Budget Office describes as a “historically modest margin” of £9bn over five years.

Hunt also announced an extension of a windfall profits tax on oil and gas companies and reportedly had a “fierce” row with Scottish Conservative leader Douglas Ross.

Hunt’s decision to scrap tax breaks for foreigners who live in the UK and do not pay UK tax on their overseas income and gains is a major U-turn that reflects Labour’s policies and casts doubt on the opposition’s spending plans loopholes. The chancellor said this was because he believed “those with the broadest shoulders should pay their fair share”.

Labor had planned to spend the £2.7bn raised by scrapping non-domestic status on public services including the NHS, leaving the party faced with the choice of abandoning the plan or finding funding elsewhere.

Starmer also said Labor would support cuts to national insurance, giving him the option of raising other taxes to pay for his spending plans, or abandoning them entirely.

However, the decision to prioritize tax cuts will mean tougher austerity for government departments at a time when public services are collapsing, NHS waiting lists are growing and councils face bankruptcy.

Foreshadowing fresh post-election austerity measures, the government’s economic and spending watchdog, the OBR, said Hunt’s plans meant funding for unrestricted government departments – including local government and the prison service – was expected to fall by 2.3% year-on-year. .

The chancellor said the tax cuts were part of a plan to create a high-wage, high-skilled economy and that the kind of growth that would bring higher living standards could not come from “unlimited immigration”.

However, the OBR said that since its autumn statement last November it had revised upward its net migration forecast for September 2028 from 245,000 to 315,000 a year.

The OBR noted that the medium-term economic outlook remains challenging, saying: “One of the biggest changes to our economic forecasts is an increase in the size and growth of the UK population. But increasing levels of inactivity are offsetting the impact on the overall size of the workforce, leaving Our forecasts for GDP levels over five years are little changed from the autumn, with GDP per capita levels falling slightly.”

The OBR raised its growth forecast for 2024 from 0.7% to 0.8% and for 2025 from 1.4% to 1.9%, but expected growth figures to remain unchanged or fall slightly over the next three years.

Despite the cumulative 4p discount on NIC announced in the Budget and Autumn Statement, the OBR said tax revenue as a share of national output would still be at its highest post-war level by the end of its five-year forecast. Before the Covid 19 pandemic, tax revenue accounted for 33.1% of gross domestic product (GDP), but by 2028-29, tax revenue will account for 37.1% of gross domestic product (GDP).

Torsten Bell, chief executive of the Resolution Foundation, a think tank, said: “The tax cuts announced today are designed to sweeten the government’s election campaign, which relies on the prospect of a £19bn post-election tax rise, plus another £19bn of fiscal fiction. Cuts to public services could be achieved through a spending review, which the Treasury confirmed today will not take place until after polling day.

“Despite this, nothing has changed in the bigger picture in this Budget. The UK remains a country where taxes are rising rather than falling – with an increase equivalent to £3,900 per household – and incomes will still be low when voters return to the polls levels compared to the last election.”

“This doesn’t feel like a pre-election budget,” said Stephen Hammond, a former Conservative minister. “Pretty much everything is being tracked. There were no rabbits today, so from a purely political standpoint, I think that still affects the narrative that this is a fall election.”

Hunt briefed Kristalina Georgieva, managing director of the International Monetary Fund, on his plans, which had warned against budget tax cuts.

International Monetary Fund spokesperson Georgieva said “Acknowledging that the UK authorities have responded to complex economic challenges through policies that support growth while stabilizing debt. IMF staff will analyze the announced policies in more detail, but continue fiscal consolidation to lower inflation and The goal of debt stabilization is welcome.”