Jeremy Hunt will set out the government’s tax and spending plans in his budget on Wednesday. In what is expected to be the last budget before the election, the chancellor’s biggest giveaway could be further cuts to employees’ National Insurance contributions, following a 2p cut in the Autumn Statement.

Meanwhile, the Office for Budget Responsibility (OBR) will publish its latest economic forecasts and assessment of government finances over the next five years – running until after the next election in 2029. Here’s what we expect.

personal tax cuts

Personal allowances – the amount people can earn before they start paying tax – and thresholds for higher rates and additional rates – will be frozen again. This means that as wages rise, more people will be pushed into higher tax brackets. This trend is expected to take overall tax rates to more than 37% of GDP by 2028, the highest level in modern times, according to the Institute for Fiscal Studies think tank.

However, Hunt is expected to spend £10bn on an overall tax cut – cutting the National Insurance contribution rate by 2p from 10% of wages to 8%. This follows a 2p cut in the Autumn Statement, taking interest rates from 12% to 10%. According to reports, the cuts will take effect in April this year.

fuel tax

Fuel duty has not risen for 15 years and the chancellor is widely expected to freeze it again. He is also expected to extend the 5p cut in fuel duty introduced in 2022, which expires this month. Together these measures are expected to cost £5 billion.

tax rise

With economic growth flattening, Hunt doesn’t have much spare cash to fund budget grants. Personal tax cuts will need to be funded through tax increases in other areas and further cuts to public services. There is speculation that tax relief for UK residents with non-resident status will be reduced, potentially saving £2 billion a year.

A new tax on e-cigarettes will raise £500m, while a higher tax on second homes used as holiday lets could raise hundreds of millions more.

Mr Hunt is also considering extending a windfall profits tax on profits from North Sea oil and gas companies, which was introduced in May 2022 after Russia restricted gas supplies to Europe, sending global gas market prices to record highs.

public service cuts

The chancellor is considering reducing the 1% increase in public spending above inflation to 0.75%. The warning comes after a series of unfunded pay settlements for nurses and other public sector workers, and a period of significant price rises affecting public services, which could leave the NHS and the rest of Whitehall running out of cash. Severe shortage. The move will raise between £5bn and £6bn a year.

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Hunt also announced a public sector efficiency plan that he hopes will save £1.8 billion by 2029. He said his plan “will free up the time of thousands of police officers”, spending less time on administration and more time fighting crime.

Councils will also be asked to improve efficiency by reducing the use of consultants and scaling back diversity training, and will be given until July to develop plans to improve productivity.

government finance

The Office for Statistics, which is independent of the government, is to publish its latest economic forecasts. Inflation and interest rates are expected to be lower this year than in the November autumn statement. Lower inflation will ease rising prices for public services, while lower interest rates will cut Hunter’s debt burden.

However, last year’s recession may mean the OBR has revised down its November forecasts for gross domestic product (GDP) growth of 0.7% this year and 1.4% in 2025. The forecast is likely to be closer to the Bank of England’s forecast of 0.2%. It is 0.6% this year and 0.6% in 2025. The bad news for the chancellor is that this will reduce tax revenue for households and businesses.

The swings and detours are expected to make Hunt better off, but leave him with only a slight increase in November’s £13bn spending space without additional tax rises or cuts in spending on public services.

The chancellor said he would abide by a self-imposed debt rule that forces him to lower the debt-to-gross domestic product ratio in the final year of his five-year forecast.