Chancellor Jeremy Hunt has dashed hopes of big tax cuts in the spring Budget, but claims the Government still wants to “lighten the tax burden”.
In November’s autumn statement, Hunt announced tax cuts of £20bn. However, in an interview with BBC’s Nick Robinson for his podcast Political Thinking, reported by The Guardian, Hunt poured cold water over the plans.
“It does not look to me like we will have the same scope for cutting taxes in the spring Budget that we had in the autumn statement,” he said. “And so I need to set people’s expectations about the scale of what I am doing, because people need to know that when a Conservative Government cuts taxes, we will do so in a responsible and sensible way.
“But we also want to be clear that the direction of travel we want to go in is to lighten the tax burden.”
Hunt informed the cabinet of the change earlier this week.
He explained there was less headroom for tax cuts now, while claiming relatively low levels of productivity were Britain’s major structural weakness.
Hunt’s change of heart follows analysis from the Treasury that shows the Government has less headroom – £14bn – for tax giveaways than indicated by independent forecasts. Headroom refers to the Chancellor’s buffer against his own borrowing rules.
Forecasts from Capital Economics and Bloomberg pegged the headroom at a more generous £19 bn and £17bn to £25bn respectively.
IMF advises against further tax cuts
The International Monetary Fund (IMF), a global financial organisation representing 190 member countries, issued a warning to the UK that it would have to balance its tax and spending needs.
Pierre-Olivier Gourinchas, the IMF’s chief economist, said: “In that context, we would advise against further discretionary tax cuts as envisioned and discussed now.”
He added: “There is a need to put in place medium-term fiscal plans that will accommodate a very significant increase in spending pressures. In the case of the UK, you might think of spending on healthcare and modernising the NHS; spending on social care; on education; you might think about critical public investment to address the climate transition; but also to boost growth.”
Hunt responded by saying that if by ‘discretionary’, the IMF is referring to a tax cut, that would not help grow the economy over the longer term and therefore was not the right choice.
