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Jeremy Hunt is targeting cutting another 2p off national insurance in a pre-election September mini-Budget that would allow the Conservatives to boast they had halved the rate of the tax in a single year.
Hunt told the Financial Times this week he would like to cut taxes in an autumn fiscal event “if we can”, in spite of warnings from the IMF about Britain’s fragile public finances and rising debt trajectory.
Senior Conservatives say the Treasury is preparing for another fiscal event. This will depend on the timing of an election, which Prime Minister Rishi Sunak has said he expects to take place in the second half of 2024, they added.
But one government official with direct knowledge of the matter said: “The Treasury is working towards a September fiscal event and will try to cut national insurance by another 2p. That’s the plan.”
A Treasury official cautioned: “Look, cutting NICs to give people more of their cash back is something we’ve doubled down on. But timings and how much is affordable is all just speculation at the moment.”
Such a cut would allow Hunt and Sunak to say they had halved the main NI contribution rate from 12 per cent to 6 per cent over the course of three fiscal events since November 2023.
Sunak has said his long-term ambition is to scrap NICs on employees altogether, calling it a “double tax” on work since the levy sits alongside the income tax system.
But a further 2p cut to NICs in the autumn would cost more than £9bn and be dependent on Hunt’s fiscal room for manoeuvre as judged by the Office for Budget Responsibility, the independent fiscal watchdog.
Public finances remain very tight and investors have recently scaled back their expectations on the number of interest rate cuts the Bank of England will be able to make in 2024.
The rethink by investors is pushing up the cost of UK government borrowing, potentially reducing Hunt’s scope for eye-catching pre-election tax cuts.
Hunt told the FT this week in Washington that he would like to cut taxes in an autumn fiscal event, as he argued that the door to reductions would be opened by “responsible management of the economy”.
The Tories are eager to build on cuts in national insurance in two successive Budget rounds as they seek to address the rising overall tax burden.
Earlier decisions in the parliament, including the freezing of personal tax thresholds, mean tax as a share of GDP is predicted to reach 37.1 per cent in 2028-29 by the OBR, 4 percentage points higher than before the pandemic.
“As we move through the year towards the autumn, some of the changes in economic policy, including lower taxes, will be felt in people’s pockets — and that’s clearly something that is significant for us,” Hunt said.
However, the government came under fire from the IMF again this week. The fund listed the UK in its Fiscal Monitor publication on Wednesday as one of four large economies that “critically need to take policy action to address fundamental imbalances between spending and revenues”.
It questioned Hunt’s cuts to NICs, including those in the March Budget, saying that even while they had been “part-funded by well-conceived revenue-raising measures”, the action could worsen the public debt trajectory in the medium term.
The IMF urged Hunt in January to prioritise spending on health, education and tackling climate change rather than tax cuts.
A Treasury spokesperson said: “Any fiscal events would be announced in the usual way.”
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