Reports say Hunt is expected to announce a 2p cut to National Insurance
Several British media outlets reported on Tuesday that Hunt is expected to announce a 2 pence cut to National Insurance.
National Insurance in the UK is a tax on workers' income and employers' profits to pay government social security benefits, including the state pension.
The Treasury confirmed that the government will use its fiscal capacity to “help families through permanent tax cuts.”
The reported plans match the previous cut announced in Hunt's autumn statement, which reduced the NI rate from 12% to 10%.
Although the Conservative Party described it at the time as “the biggest tax cut ever for workers”, opposition parties and many economists were quick to point out that its benefits for payers would be washed out by the impact of the current freeze on personal tax thresholds. €” known as “financial withdrawal”.
-Elliot Smith
Berenberg: Tax cuts are unlikely to help the economic recovery or the Conservatives' electoral hopes
LONDON – 15 March 2023: Workers from other striking trade unions joined tens of thousands of striking teachers as they marched from Hyde Park towards Trafalgar Square on the day Chancellor Jeremy Hunt announced the Spring Budget.
Jay Smallman/Getty Images
Wednesday will be the government's last chance to influence the economy before a general election sometime later this year.
But with limited fiscal space, Calum Pickering, chief economist at Berenberg, is skeptical that even modest tax cuts can materially help the Conservatives close the huge poll gap with the main opposition Labour, which appears set for a historic landslide.
“First, the government simply does not have the fiscal space to give the economy a significant boost,” Pickering said in a note on Tuesday.
“Secondly, since power is likely to shift to Labor later this year, at best, tomorrow’s announcements could only be valid for six to nine months before the five-year plans are torn up and rewritten by the next chancellor (likely from the Labor Party).”
The Independent Office for Budget Responsibility estimated in November that the government had about £13 billion of headroom against its primary fiscal target, which is to reduce net public sector debt in the final year of its five-year forecast horizon.
Between April and January, government borrowing has so far been £9.2 billion below the OBR's November forecast, but the extent of Hunt's fiscal progress will depend on a new set of OBR forecasts published on Wednesday.
“While potential modest cuts to economic growth will hurt projected public finances, strong population growth and lower interest rates will provide a boost,” Pickering said.
“As a best guess, Hunt probably has £20-25bn of room to manoeuvre, which is less than the £29.7bn of GDP-adjusted space that previous advisers have been targeting since the Office for Budget Responsibility was set up in 2010. “Credibility, Hunt will need to leave at least some space.”
-Elliot Smith
Hunt: “We can now help families with permanent tax cuts.”
The Treasury said late on Tuesday night that Hunt would set out a “budget for long-term growth” through measures aimed at building a “high-wage, high-skilled economy”.
Hunt is expected to say: “Of course, interest rates remain high as inflation is lowered. But because of the progress we have made as we deliver on the Prime Minister's economic priorities, we can now help households through permanent tax cuts.” In Wednesday's budget statement.
The Chancellor is also expected to reiterate the government's message on fiscal responsibility, with some economists anticipating targeted cuts in public spending.
Hunt is scheduled to say: “When it comes to borrowing, some people think there is a choice between responsibility and compassion. They are wrong.”
“As the pandemic ends, we must be responsible again and increase our resilience to future shocks. This means reducing borrowing so we can start reducing our debt.”
-Elliot Smith
This is what the government has already announced
As always, the weekend leading up to the big financial statement was filled with teasers about what to expect on Wednesday.
The Treasury previously announced plans over the weekend to deliver up to 1.8 billion pounds ($2.3 billion) in benefits by boosting public sector productivity, including freeing up police time for more frontline work.
The Independent Office for Budget Responsibility estimates that a return to pre-pandemic productivity levels could save the Treasury up to £20 billion a year.
The Treasury said on Monday that Hunt will also announce £360 million in funding to boost research, development and manufacturing projects in the life sciences, automotive and aerospace sectors.
This will include £92 million of joint government and industry investment to “expand facilities to manufacture life-saving medicines and diagnostic products”, £200 million of joint investment in zero-carbon aircraft technology and around £73 million in automotive technology.
Pension funds will now be required to publicly disclose how much they invest in UK companies versus overseas, and underperforming ventures will not be allowed to accept new business from their employers.
-Elliot Smith
Former Labor MP Umunna says there is “unity of understanding” between Reeves and Hunt on fiscal rules
Chuka Umunna, Head of ESG EMEA at JP Morgan and former UK Labor MP, discusses the upcoming general election and the potential implications for fiscal policy.
