By the time Jeremy Hunt stood up in the Commons on Wednesday lunchtime, the traditional pre-briefing from the Treasury had left little doubt that the priority was expectation management. With stretched public finances and a record high UK tax burden, the Chancellor was forced to operate with limited fiscal headroom.
It was only a few short months ago that the Treasury were eyeing up a long list of potential economic Easter eggs to include in the budget – from abolishing Inheritance Tax to help for first-time house buyers. But the Chancellor has been besieged by warnings that shoring up public finances should take priority over short-term personal tax cuts, with the International Monetary Fund warning that Hunt should “focus on both addressing the spending needs and the path towards a fiscal consolidation”.
Despite the challenging economic climate, the Chancellor was committed to offering some positive messages in what may prove to be the last major fiscal event before the next General Election. A 2p cut to National Insurance gave Jeremy Hunt his top line, expected to save 27m UK workers an average of £450 per year.
The cut to NI has received a lukewarm response from across the political spectrum, with Labour’s Shadow Chancellor Rachel Reeves claiming that “nothing the Chancellor says or does can undo the economic vandalism of the Conservatives over the past decade”. Former Tory Cabinet Minister Lord Frost went further in his criticism, describing the announcement as “fiddling while Rome burns”. Senior Conservatives have privately voiced their disappointment that the Chancellor refused to include a reduction in Income Tax as a direct appeal to voters’ pockets.
Balancing the books, the Chancellor unveiled a series of new taxes to help fund the estimated £10bn a year National Insurance cut. These included:
- New tax on vape liquids – with higher rates for products with more nicotine – and a one-off rise in Tobacco Duty to ensure vaping remains a more cost-effective alternative to traditional smoking. It is expected to raise £500m a year by 2029.
- Reduction in the time that ‘non-dom’ residents can avoid paying tax on overseas earnings, expected to bring around £2bn a year into the Treasury.
- End to tax breaks on residential holiday lets, expected to raise £300m.
- Increase in Air Passenger Duty for those flying business class. The current rate brings in £3.8bn a year, with the hike expected to inflate the figure by hundreds of millions.
- Extension of the Energy Profits Levy on oil and gas companies – the 35% levy on energy companies often referred to as the ‘Windfall Tax’ – for a further 12 months.
The question that has dominated Westminster remains unanswered – was this Spring Budget the government’s last fiscal flourish before a May election, or will Rishi Sunak hold out until the autumn to give his Chancellor another chance to set out the Conservative stall to voters before heading to the polls?
Sources in the Labour Party remain convinced that the Prime Minister could still be tempted to go early, pointing to the millions of pounds already being spent by the Conservatives on social media advertising and targeted mailings. Senior figures in No.10 are being tight-lipped, but the Chancellor has told colleagues privately that he hopes to offer further economic incentives – including a cut to income tax – at the Autumn Statement.
For now, the Chancellor will be content that today’s statement offered enough ‘red meat’ to the Conservative base to avoid any political backlash, while presenting a major challenge to the Labour Party about their own future spending plans. By lifting policies like non-dom reform directly from the Opposition’s draft manifesto, Hunt has thrown down the gauntlet to Rachel Reeves and posed the question of how his opposite number would balance the books after the election.
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To read the full analysis from our Associate Partner, Luke Francis, on today’s Budget, read the Pagefield Budget briefing 2024.
