Hunt cuts national insurance in pre-election Budget but tax burden still rising

By David Hughes, Reporter6th March 2024News EnglandGovernment / Politics, News England, Top Stories

Jeremy Hunt cut national insurance in a pre-election giveaway, but living standards remain squeezed and millions of people face being dragged into higher tax bands.

The Chancellor said the 2p reduction in national insurance for employees and the self-employed would reduce levels of personal taxation to an almost 50-year low.

But the UK is still on course to have an overall tax burden which is rising “near to a post-war high”, the budget watchdog said.

Almost seven million people will either be dragged into income tax for the first time or shifted into higher bands by 2028/29 as a result of the decision not to raise thresholds in line with inflation.

The Office for Budget Responsibility (OBR) said this results in an extra £41.1 billion for Treasury coffers, which is only partly offset by the £21.4 billion cost of the successive 2p national insurance cuts announced in the Budget and November’s autumn statement.

But Mr Hunt insisted his measures were designed to reward work and would encourage more people into jobs.

He told MPs: “The average earner in the UK now has the lowest effective personal tax rate since 1975, and one that is lower than in America, France, Germany or any G7 country.”

The cut in national insurance was the centrepiece of a Budget which sought to persuade voters to stick with the Conservatives rather than give Labour leader Sir Keir Starmer the keys to No 10.

Mr Hunt offered more help with child benefits for parents earning more than £50,000 and cut the top rate of capital gains tax on property sales – arguing that reducing it from 28% to 24% will bring in more money because of increased activity.

But as he insisted those with the “broadest shoulders” will pay more, he committed to scrapping the non-dom status for wealthy foreigners, putting the £2.7 billion a year raised as a result towards tax cuts.

The national insurance cut from April will be worth an average £450 for workers and £350 for the self-employed.

When combined with a previous reduction which came into effect in January it will be worth £900 for 27 million workers and £650 for two million self-employed.

The OBR said the package of measures means Mr Hunt is meeting his rule of having national debt falling as a share of gross domestic product (GDP) – a measure of the size of the economy – in 2028-29 by a “historically modest margin” of just £8.9 billion.

The Chancellor told MPs that “we can now help families not just with temporary cost-of-living support but with permanent cuts in taxation”.

Mr Hunt said inflation is set to fall to below the Bank of England’s 2% target “in a few months’ time”, easing the cost-of-living squeeze.

But he also set out a series of measures aimed at offering “much-needed help in challenging times”, including:

Changing the way child benefit is treated, with the individual earnings threshold at which it is taxed increasing from £50,000 to £60,000 from April, with people getting at least some help until they earn £80,000.
Freezing fuel duty and extending the “temporary” 5p cut for a further 12 months.
A freeze in alcohol duty to February 1 2025.
Extending the Household Support Fund with an extra £500 million.
Guaranteeing funding rates to early years providers for the next two years to deliver its “landmark” childcare expansion offer.

The OBR forecast that GDP is set to grow more than previously expected, albeit still at relatively modest levels.

The OBR forecast growth of 0.8% in 2024, up from the 0.7% forecast in November, and 1.9% next year – up from 1.4% on the autumn forecast.

Growth is expected to be 2% in 2026, again slightly higher than previously expected, 1.8% in 2027 – a 0.2 percentage point decrease – while the forecast for 2029 remained unchanged at 1.7%.

“Because we have turned the corner on inflation, we will soon turn the corner on growth,” Mr Hunt said.

The Chancellor will maintain his plan to increase public spending by 1% a year over the course of the next parliament, although the OBR said that would “imply no real growth in public spending per person over the next five years” as it revised up its expectation of net migration from 245,000 to 315,000.

Mr Hunt pledged to increase public sector productivity, including a package of NHS reforms which will “slash the 13 million hours lost by doctors and nurses every year” as a result of obsolete computer systems with a £3.4 billion IT investment.

He also promised an additional £2.5 billion for the NHS to “meet pressures in the coming year”.

The Chancellor confirmed he will replace the current non-dom tax regime with a “modern, simpler and fairer residency-based system”.

The move lays a trap for Labour which had promised to scrap the status and put the money into public services including the NHS, rather than directing it towards tax cuts as Mr Hunt has done.

For businesses, Mr Hunt increased the threshold at which small firms have to register for VAT from £85,000 to £90,000.

He confirmed a new British ISA will allow an extra £5,000 of tax-free investment in UK assets.

Tax rises announced by Mr Hunt included a widely anticipated levy on vaping from October 2026 and an increase in tobacco duty which will raise £1.3 billion by 2028/29.

He also announced the abolition of some property tax breaks, with multiple dwellings relief to be scrapped from June, raising £385 million a year, and the furnished holiday lettings tax regime abolished from April 2025, raising £245 million a year.

With the Tories trailing Labour in opinion polls by around 20 points, Mr Hunt took aim at Sir Keir’s party, saying voters face “a plan to grow the economy versus no plan, a plan for better public services versus no plan, a plan to make work pay versus no plan”.

But Sir Keir said the Budget was the “last desperate act of a party that has failed”.

“Britain in recession, the national credit card maxed out, and, despite the measures today, the highest tax burden for 70 years,” he said.

“The first Parliament since records began to see living standards fall, confirmed by this Budget today.”

Paul Johnson, director of the Institute for Fiscal Studies think tank, said: “Come the election, tax revenues will be 3.9% of national income, or around £100 billion, higher than at the time of the last election. This remains a parliament of record tax rises.

“While the OBR got a little more positive in its projections, the picture on living standards also remains dismal. On average, households will be worse off at the time of the next election than they were at the last, following nugatory real earnings growth.”