What's going to be in the Budget?
Don’t expect any major surprises in next week’s Budget, writes PoliticsHome reporter John Johnston – but expect a scrap over tax.
Chancellor Jeremy Hunt is preparing to deliver his second fiscal set piece as the United Kingdom continues to grapple with soaring inflation rates, record energy prices and a continued squeeze on the cost of living.
It is the first opportunity for the Chancellor to make his mark on the UK’s finances after using his Autumn Statement to overturn many of the measures announced by his predecessor Kwasi Kwarteng in his disastrous mini-Budget, which created chaos across financial markets.
Coming just months after Prime Minister Rishi Sunak established economic stability as one of his key priorities for the year, few expect Hunt to deliver any major bombshells on 15 March as he seeks to repair the reputational damage wrought on his party by Liz Truss’s tax-slashing economic agenda.
But Hunt’s plan to steady the ship with a slimmed-down set of fiscal measures comes amid a backdrop of clamouring for the Chancellor to cut the UK’s tax burden or increase public spending to help alleviate pressure in the public sector, which has seen wave after wave of industrial action as pay packets fail to keep pace with inflation.
Those seeking to influence Treasury thinking have been buoyed by January’s figures from the Office for Budget Responsibility (OBR), which showed a surprise surplus following stronger than expected self-assessment tax receipts and a forecasted drop in global energy prices, which could help dampen inflation rates at a quicker than expected pace.
Both in public and behind the scenes, Conservative MPs are lobbying hard for the Chancellor to slash the tax burden ahead of the next general election, with senior party figures saying the Spring Budget should be used to “show there is a path” to lower taxes.
One of the major calls is for Hunt to scrap the planned rise in corporation tax, which is set to rise from 19 per cent to 25 per cent in April, with Tory MPs arguing the downward pressure on investment as a result of the change will outweigh the benefits of an increased tax take.
With a lower headline rate than many other countries – even after the proposed increase – others have suggested that sticking to the corporation tax change could be offset with a more generous tax deduction plan, such as expanding the allowance to include investment areas such as R&D spend.
But Hunt’s public statements suggest the additional fiscal headroom is unlikely to alter his current debt reduction strategy, saying it was “vital” to stick with his medium-term vision to stabilise the UK economy before making any significant changes to the tax and spend regime. Instead, many suspect that any significant rabbits could be held back until the Autumn, where an improved economic picture could give Hunt the opportunity to announce a wave of tax cutting measures in preparation for a potential Spring 2024 general election.
Despite the traditional Treasury omerta, reports suggest that Hunt will continue to press ahead with plans to ease the government’s energy support package, meaning typical household bills could see a rise from £2,500 to £3,000, but deliver a major saving for the Treasury. It’s a significant gamble and ministers will be preparing to face a significant backlash as households continue to face the squeeze while hoping that volatility in the wholesale energy markets continues to settle.
But one glimmer of hope for Tory backbenchers is speculation the Treasury could be considering extending childcare provision to support more people back into the workforce. While proposals to extend the 30 hours of free childcare to one and two-year-olds have been rejected because they are prohibitively expensive, some form of further support is expected as the government attempts to alleviate growing rates of economic inactivity.
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