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Jeremy Hunt aims to cut another 2p from national insurance in a pre-election mini-budget in September which would allow the Conservatives to boast of having halved the tax rate in just one year.
Hunt told the Financial Times this week that he would like to cut taxes at an autumn fiscal event “if we can”, despite IMF warnings about Britain’s fragile public finances and rising debt trajectory.
Conservatives say the Treasury is preparing for another fiscal event. This will depend on the timing of the election, which Prime Minister Rishi Sunak has said he expects to take place in the second half of 2024, they added.
But a government official with direct knowledge of the matter said: “Treasury is working towards a September fiscal event and will look to cut national insurance by another 2p. That’s the plan.”
A Treasury official warned: “Look, cutting NICs to give people more money back is something we’ve doubled down on. But the timing and how convenient it will be at the moment are just speculation.”
Such a cut would allow Hunt and Sunak to claim they have halved the NI headline contribution rate from 12% to 6% over three tax events from November 2023.
Sunak said his long-term ambition is to eliminate NICs on employees altogether, calling it a “double tax” on work as the tax sits alongside the income tax system.
But a further 2p cut to NICs in the autumn would cost more than £9bn and depend on Hunt’s fiscal room for manoeuvre, according to the judgment of the Office for Budget Responsibility, the independent fiscal watchdog.
Public finances remain very strained and investors have recently scaled back their expectations for how many interest rate cuts the Bank of England will be able to make in 2024.
The change of heart by investors is pushing up the cost of UK government debt, potentially reducing Hunt’s chance of eye-catching tax cuts before the election.
Hunt told the FT this week in Washington that he would like to cut taxes at an autumn tax event, as he argued the door to cuts would be opened by “responsible management of the economy”.
The Conservatives are keen to exploit national insurance cuts in two successive budget rounds in a bid to tackle the growing overall tax burden.
Previous decisions by Parliament, including freezing personal tax thresholds, mean that taxes as a share of GDP will reach 37.1% in 2028-29, 4 percentage points higher than before, according to the OBR of the pandemic.
“As we get closer to the fall, some of the changes in economic policy, including tax cuts, will be felt in people’s pockets — and that’s clearly something that’s significant to us,” Hunt said.
However, this week the government was again criticized by the IMF. The fund listed the UK in its Fiscal Monitor publication on Wednesday as one of four major economies that “urgently need to take policy action to address fundamental imbalances between spending and revenue”.
He questioned Hunt’s cuts to NICs, including those in the March budget, saying that even if they had been “partly funded by well-conceived revenue-raising measures”, the action could worsen the public debt trajectory over the medium term .
In January the International Monetary Fund urged Hunt to prioritize spending on health, education and fighting climate change over tax cuts.
A Treasury spokesperson said: “Any tax events will be announced in the usual way.”