With Chancellor of the Exchequer Jeremy Hunt set to announce his Spring Budget on March 6th, we look into what we can expect from the UK's Spring Budget.
Tax Cuts
Mr Hunt has hinted at a series of tax cuts for the Spring Budget. Mr Hunt believes that the UK needs to reduce taxes as they are at the highest level since The Second World War. Speaking at the annual World Economic Forum in Davos, Switzerland, he said that countries with lower taxes have more "dynamic, faster-growing economies".
A key part of the Spring budget then will be tax cuts, but the question is how can these be paid for? The latest figures from the Office of National Statistics (ONS) had marked inflation remaining at 4%, which is still double the Bank Of England's target of 2%. With interest rates unlikely to be dropped until the summer in an ongoing attempt to reduce inflation, the cost of borrowing remains high.
Therefore, Mr Hunt is unlikely to borrow money to pay for the tax cuts as we would be forced to pay these back with a higher interest rate, not to mention that Hunt himself said: "It is not Conservative to cut taxes by increasing borrowing because all you're doing is cutting the taxes paid by people today in exchange for increasing the taxes paid by our children tomorrow."
Cutting Inheritance Tax
One of the taxes regularly brought up as being cut or even scrapped is the inheritance tax. Currently, only 4% of the population is impacted by inheritance tax, but as house prices rise, and with inheritance tax thresholds frozen, it means more people are likely to pay this tax.
This policy is likely to be very popular with well-off Conservatives throughout the country, who will be able to pass on their wealth and assets more freely to future generations. However, it's likely to be very unpopular to those who fall outside of this, which is the vast majority of the country, who will likely see this as a tax cut for the rich, whilst the poorest in the country remain under a heavy tax burden.
Cutting Income Tax
There is also the potential for Income Tax to be cut. This cut, as well as a further potential cut to the National Insurance tax, could save your average pay-as-you-earn (PAYE) workers as much as £450. As reported by The Times "A 2p cut to income tax for someone earning £35,000 would leave them £448 better off a year while someone earning £60,000 would have an extra £948, according to analysis from AJ Bell."
"Meanwhile, a further percentage point cut to NI would leave a worker earning £35,000 a year £673 better off while someone earning £60,000 would be £1,131 better off."
"It sounds good, but such cuts are wiped out by the impact of frozen tax thresholds, known asfiscal drag. "
Cutting Spending
It seems likely that to pay for tax cuts, Mr Hunt would be either forced to cut public spending or find taxes that can be low impact, but still reduce the tax burden. On the BBC's Political Thinking Podcast,Mr Hunt said: "It doesn't look to me like we will have the same scope for cutting taxes in the spring Budget that we had in the Autumn Statement".
"And so I need to set people's expectations about the scale of what I'm doing because people need to know that when a Conservative government cuts taxes we will do so responsibly and sensibly."
He added: "But we also want to be clear that the direction of travel we want to go in is to lighten the tax burden."
According to theFinancial Times, sources close to Hunt have said that Treasury officials are considering “reducing projected spending rises to about 0.75 per cent a year, releasing £5bn-£6bn for Budget tax cuts.”
Politics at play
With a General Election looming Mr Hunt and the Conservatives will be reticent of their current low standing in the opinion polls and will likely see tax cuts as one of the only potential routes to victory. In light of the UK's recession, Mr Hunt will be eager to grow the economy again and stop the current stagnation occurring in the UK's economy, which was one of Prime Minister Rishi Sunak's five pledges.
With that being the case, the economy will be one of the Prime Minister's best weapons in winning back voters. They'll be hoping that by using the spring budget, they can use a series of tax cuts to grow the economy and boost their flagging opinion polls, which put them somewhere between 15-20 points behind the Opposition Labour Party.
The full interview with Jeremy Hunt from Political Thinking with Nick Robinson is available onBBC Sounds.
