Is Jeremy Hunt Actually Cutting Taxes?
Jeremy Hunt on a visit in London after presenting his Spring Budget (Alamy)
3 min read
Jeremy Hunt presented his much anticipated Spring Budget to the House of Commons on Wednesday, with its flagship policy of cutting a further two pence from National Insurance an apparent demonstration of his ability to cut taxes.
But the Budget also contained a number of new taxes, such as a levy on vapes, and an end to tax reliefs on holiday homes and non-domiciled citizens, plus the continued income tax threshold freeze means many more people will be pulled into a higher tax bracket as wages move with inflation.
Speaking in the House of Commons on Wednesday afternoon, Hunt said that his plans deliver “more investment, more jobs, better public services and lower taxes”.
But have taxes really been cut when various measures are balanced against one another? Not according to economic analysts digesting today's Budget, who have indicated that the overall level of tax will continue to increase.
Hunt told Parliament that from 6 April, employees’ National Insurance will be cut by 2p, from 10 per cent to 8 per cent, following a previous 2p cut in the Autumn Statement. Self-employed national insurance will be cut from 8 per cent to 6 per cent. Hunt said this would mean an additional £450 a year for the average employee or £350 for someone self-employed.
He has been under pressure from Conservative backbenchers to cut taxes ahead of the general election, which must be called this year.
Following Hunt's announcement, Richard Hughes, the chair of the Office for Budget Responsibility told reporters that although the tax cuts announced in the Budget “help to reduce the overall tax to GDP ratio by around half a percentage point” relative to their forecasts last autumn, the figures are still set to rise in the next five years.
According to the fiscal watchdog, the ratio of taxes compared to GDP is set to fall slightly this year, driven by the changes to National Insurance, lower energy prices and a weak housing market pushing down property taxes.
However, tax as a share of GDP will then rise gradually up to a predicted 37.1 per cent of GDP in 2028-29.
According to the OBR, this would be the highest level since 1948, and 4 percentage points up on the pre-pandemic level of 33.1 per cent of GDP in 2019-20.
Among the main drivers of the increase compared to pre-pandemic, Hughes said, is the decision to keep main personal tax thresholds frozen. “This strikes growing numbers of people into higher tax bands,” he said.
The OBR’s economic and fiscal outlook document estimates that by 2028-29, there will be 2.7 million more higher rate taxpayers, compared to if thresholds had changed in line with inflation.
The same figures also predict 600,000 new additional rate tax payers.
James Smith, research director at the Resolution Foundation explained that while people in work will be getting a tax cut this year, the overall picture shows taxes increasing in the coming years.
He described the tax picture as a “slightly complicated situation”.
“We’ve got quite big tax rises once you take into account the effect of fiscal drag," he explained.
"When you look at people in work, you still see the picture of many people still paying higher taxes – but it looks like a majority of tax paying employees are now getting a tax cut this year.
“But we’re still in a position where taxes overall are going up.”
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