Hunt cuts National Insurance and extends child benefit as election loomson March 6, 2024 at 10:43 pm

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But Labour says many people will still be worse off because of existing freezes to income tax bands.

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Jeremy Hunt has announced cuts to the tax paid by workers from April, in a bid to revive Tory fortunes ahead of this year’s election.

In the last spring Budget before the poll, the chancellor slashed National Insurance by a further 2p in the pound, matching a previous cut in January.

He said it would make the tax system fairer and help revive the UK economy.

But Labour called the announcement a “con” and many people would still be worse off.

Leader Sir Keir Starmer said he supported the cut, but it would not offset freezes to tax thresholds, which will see some people pay more income tax over time.

He added that taxes were at a 70-year high, and people had taken an “unprecedented hit” to their living standards in recent years.

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Mr Hunt had been under pressure to cut personal taxes, with the Tories trailing Labour heavily in opinion polls ahead of the next general election, expected to take place later this year.

January’s cut to National Insurance, announced at last year’s Autumn Statement, did not result in the bounce in the polls longed for by Tory MPs.

It had fuelled speculation ahead of the Budget the chancellor would opt to cut income tax, which is thought to have a greater political impact with voters.

But despite this, he announced a widely-trailed 2p cut in National Insurance (NI), reducing the rate paid by employees from 10% to 8%, and from 8% to 6% for the self-employed.

He also extended eligibility for child benefits for around 170,000 families, with people earning up to £60,000 getting benefits in full and the threshold for them to be withdrawn entirely raised to £80,000.

Mr Hunt said the change to NI would be worth £450 a year to an employee on an average salary of £35,000.

In an interview with BBC political editor Chris Mason, he added his long-term ambition was to abolish National Insurance completely, but this would only take place when this was “affordable”.

In a bid to raise revenues elsewhere, he emulated two of Labour’s flagship policies: replacing the non-dom regime for UK residents whose permanent home is overseas, and extending the windfall tax on oil and gas companies to 2029.

The party had earmarked extra revenue from the policies to pay for new breakfast clubs and extra hospital appointments.

Chart showing the impact of a 2p cut to the starter National Insurance rate

Labour has been keen to stress that freezes in the thresholds when people start paying income tax, slated until 2028, mean the tax burden will still rise for many, pointing as well to “stealth” rises in council tax.

In the Commons, Sir Keir said the chancellor was attempting to “give with one hand, take even more with the other”.

He added: “The whole country can see exactly what is happening here. They recognise a Tory con when they see it.”

Liberal Democrat leader Sir Ed Davey called the Budget a “last-ditch attempt from the Conservative Party to cling on to power”, adding it “reeks of desperation”.

“Never before have I seen a government deliver weaker public services, higher taxes and zero growth all at the same time,” he added.

Former ministers Suella Braverman and Sir David Davis both expressed regret that the chancellor had not opted to cut income tax.

Mrs Braverman, who was sacked by the prime minister last year, also said frozen income tax thresholds had led to “millions of low and middle-income workers being dragged into paying higher tax” while “unprecedented levels of low-wage, low-skilled migration” were damaging the economy.

“The government could have fixed both problems today but did not,” she said.

Tax threshold changes

The Institute for Fiscal Studies, a think tank, says the combined effect of both cuts in NI and the threshold freezes between 2021 and this April means those earning between £26,000 to £60,000 are better off.

However, people earning less than £25,000 are worse off, whilst those earning £60,000 to £120,000 will see little difference.

As well as making changes to the child benefit thresholds, the chancellor said he would consult on moving to a system that used household, rather than individual, income by April 2026.

The current system has been criticised as unfair because the threshold is based on the highest-earning parent, rather than a family’s combined salary.

That means a family where two parents each earn £50,000 can receive the full amount, whereas a single person earning £60,000 would get nothing.

‘Turn the corner’

The Budget comes against a backdrop of sluggish economic growth, with the country falling into recession at the end of last year.

However, Mr Hunt said the economy would “soon turn the corner”, with growth forecast to be faster than expected over the next two years.

The government’s independent forecaster, the Office for Budget Responsibility, is also expecting inflation – the rate prices are rising – to fall to the target rate of 2% before the end of June.

This suggests the government may wait until the autumn to call an election, which must be held by the end of January 2025, rather than calling a May poll.

By then the economic picture is likely to have improved and there could be another opportunity to cut taxes.

In other measures announced in the Budget:

  • The Household Support Fund, which helps people struggling with cost-of-living pressures and was due to close in four weeks’ time, will continue for another six months
  • A freeze on alcohol duty, which had been due to end in August, will be extended until February 2025
  • A new tax on vaping products will be introduced from October 2026
  • Tobacco duty will go up £2.00 per 100 cigarettes at same time, to ensure vaping remains cheaper
  • Fuel duty is frozen again, with the 5p cut in fuel duty on petrol and diesel, due to end later this month, kept for another year
  • Tax breaks for owners of holiday let properties will be scrapped.

The move to extend the windfall tax on energy firms has prompted a backlash from some Tories, with Energy Minister Andrew Bowie and Scottish Conservative leader Douglas Ross both describing it as “deeply disappointing”.

SNP economy spokesman Drew Henry also criticised the move, adding it meant both the government and Labour were “intent on pulling the rug from under industry’s feet”.

He added that a “just transition from oil and gas” would not happen “if we squeeze the life out of the sector overnight”.

On public services, the chancellor said he would keep the planned increase in day-to-day spending at 1% above inflation every year until 2029.

However, as some departments like health and schools have protected budgets, that means others such as justice and local government could see significant budget cuts.

Mr Hunt said the public sector would also need to improve efficiency to deliver better value for taxpayers.

He announced investment in new technology to help free up time for doctors, nurses and police, including £3.4bn to modernise NHS IT systems.

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