Chancellor Jeremy Hunt is expected to cut inheritance tax in next week’s autumn statement after the Government declared victory in its pledge to halve the rate of inflation.
Official figures showed inflation fell by more than expected to 4.6 per cent in October – its lowest level for two years. Experts had forecast a rate of 4.8 per cent.
Economists and Tory MPs said the fall in inflation gave Mr Hunt room to cut taxes in next week’s Autumn Statement, and the Prime Minister and Chancellor have reportedly discussed cutting the rate of inheritance tax from its current 40 per cent rate.
Downing Street had previously played down ‘speculation’ on cutting inheritance tax, with Whitehall sources stating in September that there had been ‘no discussions’ about including the measure in the Chancellor’s autumn statement.
Rishi Sunak pledged to halve inflation at the start of the year when it stood at more than 10 per cent
Chancellor Jeremy Hunt is expected to cut inheritance tax in next week’s autumn statement after the Government declared victory in its pledge to halve the rate of inflation
The drop, from 6.7 per cent in September, was the biggest one-month decline in the annual rate of inflation since records began in 1992.
And Chancellor Jeremy Hunt signalled that it could mean a change of tack on economic policy. ‘Now we are beginning to win the battle against inflation we can move to the next part of our economic plan, which is the long-term growth of the economy,’ he said.
Tory officials say that the move to cut inheritance tax will not have any inflationary consequences, in line with the Chancellor’s precondition on any tax cut announced this autumn that it should not increase inflation.
This move will be welcomed by Tory backbenchers, including former business secretary Jacob Rees-Mogg who backs radical action on the issue, saying inheritance tax should be ‘extinguished’.
A source told the Daily Telegraph that the move will ‘likely’ be announced in the Autumn Statement, on November 22, but a final decision will be made next week.
Inheritance tax is levied at 40 per cent after death and raises more than £7 billion a year. Although most estates fall below the starting threshold, which can be up to £1 million, surveys show it is widely despised.
The watershed moment in the cost-of-living crisis – which had seen inflation surge to as high as 11.1 per cent last autumn – should also offer leeway to the Bank of England to cut interest rates sooner, providing relief for borrowers.
Mr Sunak said: ‘In January I made halving inflation this year my top priority. Today, we have delivered on that pledge.’
Julian Jessop, at the Institute of Economic Affairs, said: ‘The sharp fall…should slam the door on any further increases in interest rates and bring forward the timing of the first cut.’
There appears to be a change of heart on cutting inheritance tax in light of Rishi Sunak meeting his pledge to halve inflation
The Bank of England’s remit is to try to lower inflation to 2 per cent so it is shying away from talk of rate cuts for now
It also ‘removes at least one obstacle to tax cuts in the Autumn Statement’, Mr Jessop added.
The fall in inflation is mainly the result of lower energy prices. Also, food price inflation has eased. Both were driven up by the war in Ukraine.
The Bank of England’s remit is to try to lower inflation to 2 per cent so it is shying away from talk of rate cuts for now. However, financial markets are increasingly confident of one by June next year.
Reports suggest Mr Hunt could extend tax breaks for business investment in the Autumn Statement but some experts think he may also be tempted to target stamp duty.
Mortgage lenders are cutting interest rates as the likelihood of a Bank of England rate cut increases.
Some brokers think home- loan rates could fall below 4 per cent by January, a relief to borrowers looking to buy or move to a new deal. Competition between lenders could help revive the housing market.
HSBC yesterday became the latest bank to cut rates, with a number of its mortgage deals now at less than 5 per cent.