Jeremy Hunt will use the final budget before the election to promise voters lower taxes and higher growth, with the chancellor announcing a 2p cut to national insurance, even at the expense of public services.
Sources said on Tuesday that Hunt had decided to cut national insurance for the second time in less than six months, ignoring calls from Downing Street and some across the party for more costly cuts to income tax before the election.
The chancellor, who sees the move as a drive for growth, opportunity and prosperity, allayed fears among many Conservatives that cuts to national insurance would not be enough to reverse the party’s 20 percentage points trailing Labor in opinion polls.
But he may impose tight spending limits after the election to help pay for tax cuts, leading some in the party to worry voters will punish them for cutting services rather than reward them for lowering taxes.
Hunter would say: “Conservatives know that lower taxes mean higher growth. Higher growth means more opportunity and more prosperity.
“But if we want this growth to deliver higher wages and a higher standard of living for every family in every corner of the country, it can’t come from unrestricted immigration. It can only happen by building a high-wage, high-skills economy. . Not only is the GDP higher, but the per capita GDP is also higher.”
In a message aimed at reinforcing the pre-election message that a Labor government would take the country backwards, Hunt will add: “Our plan is not about going back to square one, but it means more investment, more jobs, more Efficient public services and lower taxes”.
However, Labor will try to focus the debate on falling living standards. Rachel Reeves, the shadow chancellor, said: “The Conservatives promised to fix the nation’s roof, but instead they smashed windows, kicked in doors and are now burning down houses.”
Labor leader Keir Starmer said in his post-Budget response that most households would see their taxes rise even after the Budget, given that national insurance and income tax thresholds continue to be frozen in cash.
an analysis By Resolution Foundation Tuesday’s think tank showed only those earning between £27,000 and £59,000 a year will be better off as a result of the Autumn Statement and Wednesday’s Budget. Those earning £16,000 will lose almost £500 a year, as will those earning more than £60,000.
Hunt and Rishi Sunak have been struggling over the past few weeks to find enough money to deliver tax cuts on the scale of last November’s Autumn Statement, when the chancellor cut national insurance rates from 12% to 10%.
The chancellor’s actions are hampered by forecasts from the Office for Budget Responsibility showing he has less money than he hopes to be able to spend without breaking his promise that debt will start to fall in five years’ time.
However, Hunt is preparing to announce a series of targeted tax increases to help pay for cuts to national insurance.These include limiting tax deductions for non-residents, taxing e-cigarette products, increasing short holiday tax,extend Energy windfall tax and keep increasing Business class flight tax. The measures are expected to raise around £5bn a year.
More controversially, Hunt is preparing to ignore economists’ warnings of a coming crunch in public services and lower his forecasts for departmental spending after the election.
The plan he laid out in November assumed departmental budgets would grow by 1% per year above inflation after the election, all of which would be absorbed by protected departments such as health and defence. However, the Chancellor plans to reduce this to 0.75%, meaning unprotected areas such as justice and local government will face cuts of up to 20% during Parliament.
The plans have raised concerns among some in the Conservative Party, who point to a series of polls showing voters prefer increased public spending and higher taxes to the promise of immediate tax cuts.
“The tax cuts will require more unrealistic cuts to public services after the election,” one Tory insider said. “There is already a big debate over whether the public response to this will be worse than the positive response to the tax cuts themselves. debate.”
Hunt’s decision to reduce National Insurance came despite some in the Tenth MP group advocating a cut in income tax, which they believed would be more easily understood by voters. Since November’s national insurance move was announced, the Conservatives have fallen a further point behind Labor in opinion polls.
One Conservative MP said: “It didn’t work last time, what makes them think it will be different this time?”
But the chancellor argued that focusing on national insurance would reduce inflation and, unlike income tax, would apply across the UK.
Many Conservative MPs also expect the Prime Minister to promise further tax cuts in his election manifesto, including an income tax cut of up to 4p.
“This will create a clear dividing line with Labour,” one said. “There’s no way they can match that.”
Mr Hunt is also preparing to introduce other tax cuts on Wednesday, including another freeze on fuel taxes.
He may also continue to freeze alcohol taxes announced last year, but are set to expire in August this year, sources said.
Sunak will visit two pubs in different parts of the country this week, sparking speculation within the industry that the chancellor may go a step further and announce temporary cuts to VAT and business rates for the hospitality industry.Bars, restaurants and hotels have vigorously publicize The move comes as many hospitality businesses have closed in recent years due to rising costs.
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