Jeremy Hunt cuts tax to set out dividing lines with Labour ahead of election

Mason Boycott-Owen
By Mason Boycott-Owen
Published 7th Mar 2024, 06:00 BST
The Conservatives have laid down their dividing lines with Labour as the Chancellor prioritised tax cuts over sweeping investment in public services.

Delivering his Spring Budget yesterday, Jeremy Hunt announced a 2p cut to National Insurance, hinting at an ambition to abolish the tax entirely in what could be the cornerstone of the next Tory manifesto.

The move, which though aimed at bringing voters back to the Conservatives ahead of the next election, still sees millions of people dragged into higher tax bands due to a decision not to raise thresholds in line with inflation.

The 2p reduction, worth around £450 to voters, will see levels of personal taxation fall to the lowest in almost 50, though the OBR watchdog noted that the overall tax burden is still on course to be near a “post-war high”.

Prime Minister Rishi Sunak and Chancellor of the Exchequer Jeremy Hunt meet staff during a visit to a builders merchant in south east London, after the Chancellor delivered his Budget at the Houses of Parliament.Prime Minister Rishi Sunak and Chancellor of the Exchequer Jeremy Hunt meet staff during a visit to a builders merchant in south east London, after the Chancellor delivered his Budget at the Houses of Parliament.
Prime Minister Rishi Sunak and Chancellor of the Exchequer Jeremy Hunt meet staff during a visit to a builders merchant in south east London, after the Chancellor delivered his Budget at the Houses of Parliament.

Mr Hunt told MPs: “The average earner in the UK now has the lowest effective personal tax rate since 1975, and one that is lower than in America, France, Germany or any G7 country.”

This came alongside an extension of the windfall tax on oil and gas companies and reforms to the “non-dom” tax status of individuals in the UK who have overseas earnings.

Both of these policies form important parts of Labour’s spending plans under their publicly-announced proposals, used to fund several of its public spending pledges, meaning the party may have to rethink how it will cost its policies ahead of its manifesto.

The Prime Minister, Rishi Sunak, was recused from policy talks around the scrapping of the non-dom tax status, previously enjoyed by his wife, to avoid potential conflicts of interest.

The Chancellor said that he would maintain plans to increase public spending by 1 per cent a year over the next parliament, but documents revealed that the next spending review, when detailed plans for public spending and mayoral settlements are set out, will take place after the next election.

The dozens of further measures announced at the budget included reforms to child benefit, an extension of cost of living support to households, and a freeze in both fuel duty and alcohol duty.

With the Tories trailing Labour in opinion polls by around 20 points, Mr Hunt took aim at Sir Keir’s party, saying voters face “a plan to grow the economy versus no plan, a plan for better public services versus no plan, a plan to make work pay versus no plan”.

But Sir Keir said the Budget was the “last desperate act of a party that has failed”.

“Britain in recession, the national credit card maxed out, and, despite the measures today, the highest tax burden for 70 years,” he said.

Torsten Bell, Chief Executive of the Resolution Foundation, said: “The Chancellor has delivered a second dollop of pre-election tax cuts, borrowing more and taxing the likes of non doms, vapes and energy companies to do so.

“The biggest choice Jeremy Hunt made was to cut taxes for younger workers, while allowing taxes to rise for eight million pensioners. This is a staggering reversal of the approach taken by Conservative governments since 2010. It is undoubtedly good economics, even if the politics are a harder sell.”

Paul Johnson, Director of the Institute for Fiscal Studies said: “We should at least be grateful that Mr Hunt didn’t pencil in even larger cuts to as-yet-unspecified public services.

“Nonetheless, actually implementing his plans would require cutting unprotected services – including councils, courts, further education colleges, prisons – at around half the pace that George Osborne did between 2010 and 2015.

“Within the realms of possibility, perhaps, but there will be far less in the way of low hanging fruit this time around, and banking on big improvements in public sector productivity is a risky business.

“Whoever is Chancellor at the time of the next Spending Review – which the Chancellor confirmed will not take place until after the election – might wish they’d chosen a different line of work.”