Jeremy Hunt said on Sunday that he would put Britain “on a pathway to a lower tax economy” during this week’s autumn statement, which has fueled expectations among Conservative MPs. He is expected to announce tax cuts for individuals and businesses.
The chancellor has put off plans to reduce inheritance tax until next. This raises Tories’ hope that he can instead honour Prime Minister Rishi Sunak’s promise to begin cutting the basic rate of income taxes by 20p.
Sunak stated last year that by the end the next Parliament he hoped to reduce the rate to 16.0%. MPs would see a 1p reduction from April next year as a small downpayment of that promise. HMRC estimates that it would cost around £6bn.
Tories had originally planned to delay the headline-grabbing tax cut until the spring Budget, closer to the date of the next likely election. However, the party’s terrible opinion survey ratings have put Hunt under pressure to act immediately.
A senior Tory MP stated that this was “the last opportunity” for Sunak to make bold decisions and an income tax cut would be welcome: “If it is left to the run up to the election, no one takes it seriously.”
An insider Tory senior said: “They have been considering a tax cut of 1p. Number 10 is in need of a magic bullet. Hunt refused to rule out a tax cut to calm the right-wing of the party.
Hunt now has more fiscal room than he had anticipated, thanks to higher-than-expected taxes and lower debt service costs. He can give away money on Wednesday.
In the spring Budget, he had a £6.5bn buffer against his target to reduce debt as a percentage of GDP by the fifth year. JPMorgan estimates the headroom for policy measures in this week’s projections could reach about £26.5bn.
Hunt, the chancellor’s closest allies, said that the autumn statement would focus on growth.
Insiders in the government expect Hunt to fulfill his ambition of making permanent the flagship capital allowance regime that expires in 2026. This would cost about £9bn per year.
Hunt considers full expensing – which allows businesses to deduct their entire investment in IT equipment, plants or machinery – as one of most generous capital allowances available.
Hunt said that he wouldn’t announce any tax reductions that would hinder the Bank of England in its efforts to reduce inflation to 2 per cent. However, he claimed that Britain has “turned a big corner” by halving inflation to 4.6% this year.
He told Sky’s Trevor Phillips, “I will not do any tax cuts that fuel inflation”. He added that “we must show that there is a way to lower taxes”.
Hunt could have argued that reducing public spending would counteract this effect.
The chancellor announced this weekend that he will take “difficult” decisions on welfare spending in order to free up space for tax cuts. Ministers already stated that they wanted to reduce spending on benefits by forcing people receiving incapacity assistance to find work from home as part of an effort to fill gaps in the labor market.
Hunt has been urged by many Tory MPs to reduce inheritance tax. This option was available, but according to government officials it has been delayed until either the Tory election campaign or spring Budget next year.
Rachel Reeves (shadow chancellor) told the BBC that Labour would not support a reduction in inheritance tax because it was “not a priority”. Some Tory MPs are afraid that Labour will attack it as “a tax reduction for Jeremy and Rishi”.