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Chancellor Jeremy Hunt will put a £10 billion personal tax cut at the center of his budget on Wednesday, which will also see him scrap the colonial-era “non-dom” regime and provide a tax rise to investors in British companies.
Conservative MPs are trying to get Hunt to convince voters that he has a plan to drag Britain out of recession, boost growth rates and cut taxes ahead of an election due later this year.
Hunt will announce a 2p cut to national insurance rates in a move worth an average of £450 a year for 27 million workers, according to government officials. An identical cut made by the chancellor in last year’s autumn statement is repeated.
But the cuts fall short of the income tax cuts that many Conservative MPs are pushing for. Sources inside Downing Street said Prime Minister Rishi Sunak still hoped they would arrive later in the year.
Hunt will present the latest reduction in national insurance as the next step along the “long road” to reducing Britain’s tax burden, which is still on track to reach post-war record levels in 2028-29, according to the report. Institute for Fiscal Studies think tank.
“Conservatives know that lower taxes mean higher growth and that higher growth means more opportunity and prosperity,” Hunt will say, arguing that his Budget would help build “a high-wage, high-skills economy”.
Hunt presented a “Budget for Growth” in March 2023, but the UK economy slipped awkwardly into recession late last year. This time his fiscal statement is presented more cautiously as a “Long-Term Growth Budget.”
The planned national insurance cut is designed to encourage work, but some in Number 10 argue that the income tax cut would be more attractive to retail and benefit more people.
“We may yet return to this,” a Number 10 insider said, adding that Hunt could stage another tax event this year if Sunak calls an autumn election. If not, income tax cuts could feature in the Conservatives’ next election manifesto.
Hunt’s latest 2p cut to national insurance, which hit paychecks in January, failed to move the needle politically. On Monday, an Ipsos poll put Tory support at 20%, the lowest level since polling began in 1978.
Sunak promised in his last budget as chancellor in March 2022 that he would cut the basic rate of income tax from 20 pence to 19 pence by 2024, proclaiming it would be “a tax cut for workers, for pensioners, for savers”. He has also promised to reduce income tax to 16 cents if he wins the next election.
One Conservative MP, when told that Hunt intended to cut national insurance and not income tax, simply said: “Oh no.” Dame Priti Patel, a former home secretary, said she hoped income tax cuts would come later in the year, adding: “Everyone is talking about a second budget.”
Hunt’s national insurance cut will be partly funded by targeted tax rises, including on vapes and tobacco, and the abolition of current “non-dom” rules – a policy previously supported by Labor and opposed by Hunt.
The Chancellor is looking to scrap the two-century-old concept of domicile and change the way individuals receive tax breaks, the Financial Times has been told. The Treasury declined to comment.
Non-domiciled persons are UK residents who are deemed to have their permanent home or “domicile” outside the country. They can currently earn money from abroad without paying UK tax for up to 15 years, as long as they don’t bring any income or capital gains into the country.
Hunt will modernize the system, replacing the concept of tax domicile with a legal residency test that would define who benefits from a new system of tax privileges.
It will also encourage wealthy people to bring their assets and money held abroad into the UK. Tax experts have long complained that the current regime is complicated and disincentivizes non-doms from bringing wealth into the country, because when they do they are taxed.
Hunt also considered cutting Whitehall departments’ post-election spending plans to help fund early personal tax cuts. Some economists warn that this would damage strained public services.
Polls have suggested voters would prefer to see improvements to services such as the NHS rather than tax cuts and Hunt is expected to use his budget to fix the parts of the public sphere most in need.
Conservative MPs pushed him to release funds to deliver on government promises to provide free childcare and to support struggling local councils. He is also expected to announce more funding to support the “upgrading” of brownfield sites.
Meanwhile the Chancellor will also announce a new UK Isa, in a shake-up to the individual savings account which will provide a dedicated tax exemption for investing in UK shares.
The move is aimed at promoting share ownership. Isa savers are exempt from paying tax on savings interest, dividends or capital gains on funds held in Isa accounts. Withdrawals are also not subject to income tax.
Most Conservative MPs expect Sunak to wait until the autumn to call an election, leaving room for another tax-cutting event later in the year.
Hunt will warn, however, that tax cuts can only be financed by growing the economy and making the state more efficient.
“With the pandemic behind us, we must once again be responsible and increase our resilience to future shocks,” the chancellor will say. “That means reducing our loans so we can start reducing our debts.”