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Jeremy Hunt said his autumn statement has given voters a ‘very clear choice’ at the next general election, while insisting it is ‘silly’ to regard the tax cuts as a sweetener for the public.
The chancellor did not rule out an early budget, fuelling speculation Rishi Sunak could call an election in spring next year.
Touring broadcast studios a day after announcing a national insurance cut worth £10 billion, Hunt said he chose measures to ‘make the biggest difference to our long-term competitiveness’ rather than opting for ‘crowd pleasers’.
Hinting further cuts could be coming down the track, he said he had made a ‘start’ on reducing the tax burden.
The scale of his fiscal package, which also included savings for businesses, and Hunt’s announcement that the national insurance cut will take effect in January rather than April was seen by Westminster watchers as a possible sign of an election in early 2024.
The chancellor told broadcasters he had ‘absolutely no discussions’ with the prime minister about the timing of the election.
But the senior Tory did not rule out a February spring Budget, telling LBC: ‘Normally it’s in March, but we will make a decision at the appropriate time.’
The chancellor used his Commons statement on Wednesday to cut the 12% national insurance rate on earnings between £12,570 and £50,270 to 10%, saving someone earning £35,000 more than £450.
A tax break allowing firms to cut their bills if they invest in new equipment will also be made permanent.
Hunt told Sky News on Thursday: ‘We haven’t chosen the most populist tax cuts.
‘We’re trying to make the right decisions for the long-term growth of the British economy.’
He also said ‘it’s silly to think about this in terms of the timing of the next election’.
But he went on to point out the difference between the Tories’ and Labour’s approach to the economy, saying when people go to the polls ‘there is going to be a very clear choice as a result of the decisions that I made yesterday’.
Yet despite the earnings bonus, millions of workers will face a squeeze on their finances with the tax burden still set to reach a record high.
The continuing freeze in personal tax thresholds will wipe out the benefit of the national insurance reductions for many workers, as higher earnings see millions dragged into paying more to the Exchequer.
The decision to keep in place the freeze, rather than uprating them to account for rising inflation, will result in almost £45 billion of extra revenue for the Exchequer by 2028-29 as a result of ‘fiscal drag’.
Hunt conceded that ‘of course’ taxes were going up to pay for Covid-19 pandemic support and government intervention to help the public through the spike in energy prices triggered by the war in Ukraine.
‘But yesterday I did make a start in bringing down the tax burden,’ he told BBC’s Today programme. ‘I’ve never said that we were going to get there all in one go.’
The Resolution Foundation warned that the chancellor’s decision to spend almost all of the £90 billion windfall on his package of cuts left him with headroom against his debt rule of just £13 billion going into a spring Budget.
‘This is risky, fiscally (falling debt remains something happening only in a far-away future of which we know nothing), and politically (a further fiscal event remains before the next election that could easily see this fiscal space wiped out, something that would require tax rises or spending cuts at a difficult point in the political cycle),’ the think tank said in its analysis.
It also calculated that the richest households will gain most from Hunt’s changes, with the top fifth gaining £1,000 a year on average, five times the £200 gains for the bottom fifth.
The Resolution Foundation also said Hunt’s tax cuts ‘rest on a fiscal fiction implausible spending cuts’, including unprotected departments facing reductions of 14% in their real per-person day-to-day spending and capital spending falling by a third as a share of GDP equivalent to a £20 billion annual cut in investment.
The chief of the Office for Budget Responsibility fiscal watchdog, Richard Hughes, said Hunt had in effect found £20 billion for tax cuts by choosing not to protect strained public services against the growing costs of inflation.
The chancellor denied his decision will result in worse public services.
Spending the proceeds of higher inflation while not significantly increasing the budgets available to Whitehall departments means they could face a dramatic spending squeeze in the years after the election.
Asked whether public services will suffer, he told Times Radio: ‘No, and the reason is very straightforward. If we want to have money to invest in the NHS, in schools, in our armed forces over the longer term, you have to grow the economy.
‘It’s a fundamental Conservative principle that we think you need to grow the cake before you have discussions about how you cut it up.’
Labour’s shadow chancellor Rachel Reeves said her party would ‘absolutely’ vote for the national insurance cut and full expensing for businesses.
But the government’s tax cuts do not outweigh rising taxes, she said.
‘The autumn statement confirmed yesterday that the tax burden on families despite this cut in national insurance is going to continue to rise in each of the next five years.
‘So, it is some relief, but, to be honest, it doesn’t compensate for the fiscal drag.’
Reeves suggested her party, which is riding high in opinion polls, would not immediately increase income tax thresholds, focusing instead on growing the overall economy first.
She said: ‘Unless we can get out of this doom loop of low growth, we’re going to continue, sadly, to have a higher tax burden and deteriorating public services.
‘Growth has got to come first.’
By Sophie Wingate, PA Political Correspondent
source: PA
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