The UK chancellor Jeremy Hunt announced that the Spring Budget 2024 will take place on 6 March, leaving the door open for a potential early general election to be held in May.
Hunt will announce tax cuts before the budget. He hopes this will create a division with Labour, and signal to them that Britain has entered a better economic time.
The Prime Minister Rishi sunak may call for a general election soon after, on May 2, if he chooses to hold it.
Insiders at Downing Street say that Sunak will most likely call for elections in the fall. One insider said that it would give Sunak more time to lower inflation and lower interest rates.
A poll is held twenty-five working days following the dissolution. This means Sunak must announce the May 2 election in the week beginning March 25. Elections must be held before January 2025.
Many Tory MPs think Sunak will take his time and try to convince voters that the economy will be improving over the next year.
Hunt , who told that last week 2024 is the year when “we need to get rid of our pessimism” and “declinism”, said:
He said: “There is a reasonable possibility that the Bank of England will decide to lower interest rates if we continue on our current course and we are able to reduce inflation.”
The budget process was launched by the chancellor on Wednesday when he asked the Office for Budget Responsibility (the fiscal watchdog) to prepare a forecast for the economy and the finances to be published March 6.
Forecasts are crucial because they show how much “headroom Hunt has if he wants to meet his fiscal rule that debt as a percentage of GDP should be reduced by the fifth year.
Last week, Samuel Tombs of Pantheon Macroeconomics noted that the chancellor’s headroom was £13bn when he made his Autumn Statement in October.
He said that this figure could double if recent falls in bank rates and gilt yields are sustained. The current rate is 5.25 percent, but the markets expect a sharp drop next year.
Insiders in the Tory party say Hunt will “maximize” any headroom left for Budget tax reductions, and that his priority is to reduce income taxes as a signal to voters before elections. The options include a reduction in the basic tax rate to 20p and an increase in the threshold where the 40p rate kicks-in.
Sunak, who wants to run for election in the near future, argues that taxes have been on a downward trend after the shocks caused by Covid-19 and Ukraine war.
Downing Street played down Wednesday suggestions that Hunt will target inheritance tax in the Budget. They pointed out that the “vast majority” of estates – more than 96% – are not affected by the tax.
The prime minister’s spokesperson said that the tax would raise approximately £10bn in 2028-29 for funding public services. However, it is not popular with Tory voters or the right-wing media.
Sunak wants to make the claim that Labour has planned a “£28bn bombshell borrowing” the core of his campaign. He says the opposition’s costly 2021 commitment to combat the climate crisis would push government borrowing up, pushing up taxes and rates.
Labour insists on the fact that any plans for spending must fit into its fiscal rules. These include a goal of debt reduction within five years.
A spokesperson for the party said: “Labour plans to increase investment in energy independence and jobs through our green prosperity program, which is planned in the second part of the Parliament. All of our policies must adhere to our fiscal rules.