UK govt cuts taxes to jam labour ahead of general elections next year

Hunt’s most notable announcement was a two percentage point cut in the 12% nominal rate of national insurance, a payroll tax, a measure he said would help 27 million people. He also made permanent a tax break for business investment known as ‘full expens’, calling it the biggest tax cut for companies in modern British history. Nevertheless, the government’s budget watchdog said the overall tax burden will still rise to the highest level since World War II.

“Our choice is not big government, high spending and high taxes, because we know that leads to less growth, not more,” Hunt said in the House of Commons on Wednesday. “Instead, we reduce debt, lower taxes and reward work.”

The emphasis on tax cuts underlined the pressure facing Prime Minister Rishi Sunak’s Conservative government, which is running out of time to win back voters and regain a 20-point lead over Keir Starmer’s Labor Party in the national polls . But despite Hunt’s optimistic rhetoric, think tanks such as the Resolution Foundation said his measures would do little to ease the economic pressure Britain is feeling, even if he piles up spending problems for the next government.

“Nothing announced today will even remotely address rising mortgages, rising taxes that are eroding wages, high inflation as prices rise in shops, public services on their knees and too many families struggling to make ends meet,” said Labour’s Rachel Reeves. , who, according to opinion polls, could make the Chancellor’s statement in a year’s time, parliament said.

Still, Reeves welcomed the National Insurance cut, saying she had “long argued that taxes on working people are too high.”

Key measures revealed by Hunt in Autumn statement

Reduce national insurance for employees by 2 percentage points

Expired Class 2 National insurance paid by self-employed persons

Made the “full cost” business investment tax credit permanent

All alcohol duties frozen until August 1

Social benefits have been increased by 6.7%, in line with inflation

Increased the state pension by 8.5%, in line with wages

Extensive discount of 75% on business rates for retail, catering and leisure

What had been forecast as an autumn statement with no major giveaways over the summer changed dramatically in the run-up to Hunt’s announcement, when Sunak and his senior ministers began talking about the prospect of tax cuts. They cited reducing inflation as a reason to change course, but in reality Hunt’s measures were financed in large part because high inflation and wage growth boosted tax revenues.

According to the Resolution Foundation, Hunt has essentially spent his inflation windfall on tax cuts, while projecting government spending plans for the rest of the forecast period as impossibly low. Or simply put: giving a future government the choice of raising taxes or cutting public services. Hunt’s leeway is a “budgetary illusion” because post-election commitments are likely to prove politically impossible, the report said.

“For all the talk of a long-term strategy, this has been a short-term approach, with giveaways today but costs to be borne by the country in the future,” said Carys Roberts, executive director of the Institute for Public Policy Research think tank. , according to an emailed statement.

Hunt’s tax cut package was overshadowed by gloomy economic forecasts from the Office for Budget Responsibility, as well as its analysis that despite Wednesday’s giveaways, the overall tax burden will still rise to 37.7% of gross domestic product in 2028-2029, a post-war height. The UK economy is forecast to grow by 0.7% in 2024 and 1.4% in 2025, compared to the OBR’s previous forecasts of 1.8% for 2024 and 2.5% for 2025.

“Under this Conservative government, economic growth is flattening and public services are on their knees,” Sarah Olney, spokeswoman for the Liberal Democrats’ finance ministry, said in parliament.

On spending, Hunt said he would increase welfare payments in line with September’s inflation rate rather than October’s lower figures, a prospect that had raised concerns among some of his MPs worried about the impact on struggling voters. He also maintained the triple lock scheme for pensions and decided not to use lower wages in the latest increase.

But he unveiled a crackdown on long-term unemployed welfare recipients, warning that if they failed to receive six months of “intensive support” to help them find work their benefits would be stopped. Reeves hit back, saying: “The best way to get people back to work is to get the NHS back to work.”

The chancellor has been under intense pressure to announce cuts in personal taxes as Tory MPs demand he cuts the tax burden, which is on course for a post-war peak under the Conservatives. The stakes for the Autumn Declaration grew for Sunak after a series of failed resets, including a largely forgotten conference speech last month and a thin legislative agenda during the King’s Speech.

The response from many Tory MPs was positive. The declaration “cuts taxes, invests in growth, seeks to reduce the size of the state and reforms welfare,” Ben Bradley said in the House of Commons. “It will go down very well with the vast majority of my constituents who voted for a Conservative government in 2019.”

But how successful the speech was will become clear in the months leading up to the elections, which are due to take place in January 2025. Hunt took aim at several Labor policies, including a pledge to spend £28 billion a year on transitioning the economy to green energy. .

The strategy is clear: present the Tories as a party that will cut taxes – in the hope that voters will look beyond their record in government – ​​while at the same time trying to portray Labor as a government that would raise taxes to meet its ambitions finance.

The question is whether voters will bite. “What has been laid bare today is the full extent of the damage this government has done to our economy over the last thirteen years,” Reeves said, revealing how Labor will respond.