Chancellor Jeremy Hunt has indicated further tax cuts could be on the cards, at the World Economic Forum in Davos last week (January 18).
Speaking to a group of journalists in Davos - including the Financial Times - Hunt described lower tax economies like North America and Asian as “more dynamic and more competitive” saying this was the direction he wanted to move in.
Hunt announced in the Autumn Statement he would be cutting NI taxes by two pence which came into effect January 6.
While this was aimed at putting more money in Brits’ pockets, for some the cut in NI was offset by frozen income tax thresholds which pull many into higher tax brackets.
Tom Selby, director of public policy at AJ Bell, said that income and inheritance tax could be what Hunt is considering cutting in the upcoming Spring Budget.
However, which one will be cut and to what extent will depend on the fiscal ‘headroom’ Hunt will have, according to Selby.
He said: “If the goal is to put more money in people’s pockets ahead of the general election, unfreezing income tax allowances would be the simplest way to do it.
“Alternatively, the chancellor could opt for a headline grabbing reduction in income tax rates, although this would create unwelcome complexity, as we have seen with reforms to the income tax system in Scotland, and would also be hugely costly for the Treasury.”
Cutting IHT or even abolishing it - which many expected to happen in the Autumn Statement but did not - would be a “popular pre-election giveaway” said Selby as the tax is widely disliked.
Negative reaction from public
The reaction to reports of Hunt potentially considering further tax cuts was not received well by some members of the public.
One user posted on the social media site ‘X’ saying: “A few extra pounds in the pocket is no good to you if the infrastructure is collapsing around you. Tax cuts need to be based on the distribution of wealth from a thriving economy, not robbing Peter to pay Paul.”
While another user said: “Voters want functioning public services… not inheritance tax cuts or any other tax cuts that only the rich benefit from.”
Potential tax cuts dampened by inflation rise
Latest figures from the ONS published January 17, showed inflation unexpectedly rose to 4 per cent in the year to December 2023, up from 3.9 per cent the month prior.
According to the ONS the rise was mainly due to alcohol and tobacco prices increasing.
In response to the inflation figures Hunt said that the UK needed to “stay on course” in a post by the Treasury on X.
He said: “We took difficult decisions to control borrowing and are now turning a corner, so we need to stay the course we have set out, including boosting growth with more competitive tax levels.”
alina.khan@ft.com
