Chancellor Jeremy Hunt is this weekend scrabbling to find the money to make a 2p cut in personal taxation in Wednesday’s Budget – and rescue the Tories election hopes in the process.
The Treasury had hoped to have around £30bn available for handouts, but unexpected rises in the cost of Government borrowing has reduced that to around £13bn, equivalent to a 1p cut in income tax and 1p off National Insurance.
Mr Hunt is exepcted to meet Prime Minister Rishi Sunak this evening (Sunday) to finalise the plans, which will include a crackdown on non-dom tax status and might include a tax on vaping, holiday lets or a further windfall levy on oil and gas companies, all in order to free up more mney for personal tax cuts.
Mr Sunak had hoped that a tax-cutting Budget would finally help the Tories to reel in Sir Keir Starmer’s daunting opinion poll lead, and put the economy on a buyoant path towards a second giveaway Budget in the autumn before a general election.
Jeremy Hunt (pictured) is exepcted to meet Prime Minister Rishi Sunak this evening (Sunday). Pictured, Chancellor of Exchequer leaving Downing Street
Rishi Sunak had hoped that a tax-cutting Budget would finally help the Tories to reel in Sir Keir Starmer ‘s daunting opinion poll lead. Rishi Sunak addressing the nation outside Downing Street
However, some Tory MPs warn against ‘waiting for something to come along’, pointing out that big bills were coming down the track for issues such as the infected blood scandal, which could top £11 billion – just as hundreds of thousands of voters are coming off fixed-rate mortgages and on to more expensive deals.
There is a growing division between Conservatives who think the Prime Minister should wait until the autumn and those who think he should go to the country now while Labour is divided over its Gaza policy – and before Migel Farage’s Reform Party eats even further into its support.
The Mail on Sunday revealed last month, meetings have been held in government offices to make contingency arrangements for an Election on May 2, the same day as the local elections. Labour has long suspected that the Prime Minister might call a snap Spring election, despite him delcaring earlier this year that his ‘working assumption’ was that it would held in the second part of this year.
Both No.10 and No.11 deny claims made last week by former chancellor George Osborne that there there is friction between Mr Hunt and Mr Sunak over what cuts to make
Members of ‘Team May’ also point out that legal migration figures due to be published at the end of May are expected to be ‘a horror show’ for No.10, and that it is likely to be another summer dominated by coverage of migrants making small boat crossings from France.
The Chancellor has expressed his frustrations about his limited room for movement at a meeting with the One Nation group of moderate Tory MPs.
A source said: ‘He was very much trying to dampen down expectations,’ The MPs pointed out that the 2p which Mr Hunt cut from national insurance contributions (NICs) in his autumn statement had not ‘cut through’ to voters despite its £22bn cost; the measure was preferred by the Chancellor because it is less inflationary than an income tax cut. But it is also less electorally effective.
Both No.10 and No.11 deny claims made last week by former chancellor George Osborne that there there is friction between Mr Hunt and Mr Sunak over what cuts to make.
Pensioners set to be hit by Chancellor’s stealth tax raid
by Patrick Tooher
Millions of pensioners will be forced to fill in an annual HMRC return for the first time within three years due to the Chancellor’s multi-billion stealth tax raid, according to an analysis by The Mail on Sunday.
Tax grab: Chancellor Jeremy Hunt
Older people are likely to be dragged into the tax net even if they have no income other than a full state pension.
This is due to so-called ‘fiscal drag’. Jeremy Hunt has frozen personal allowances and thresholds for several years, pulling more people into the tax net and higher rate bands.
Due to higher-than-expected inflation, this has resulted in a far bigger haul than anticipated. The number of pensioners who have been caught in the income tax net is already set to hit a record 8.5 million this year – up from 4.5 million in 2010.
The Chancellor is expected in this week’s Budget to keep the personal allowance – the point at which people start paying income tax – pegged at £12,570 until 2028. He is also committed to the ‘triple lock’, which guarantees that the state pension will rise each April in line with the highest of either the previous September’s inflation rate, earnings growth or a rate of 2.5 per cent.
The full pension rises next month in line with inflation of 8.5 per cent to £11,501 a year. Price rises have since slowed to 4 per cent and wage growth to 6 per cent.
But even if earnings growth fell to 5 per cent a year, our analysis shows the state pension would exceed the personal allowance in 2027, triggering a 20 per cent tax charge on the difference. That would also mean millions of unsuspecting pensioners facing the daunting prospect of filling out an annual tax return – even for a tiny amount owed – or being fined if they miss the deadline.
Jason Hollands of wealth manager Evelyn Partners said while pension rises were welcome, if pensioners’ incomes were dragged into the tax system they could end up worse off in real terms. When the freezes were introduced by Rishi Sunak as Chancellor in 2022 they were expected to raise £8 billion. Now the figure is £43 billion by 2027-28.
The Office for Budget Responsibility says frozen thresholds are the biggest contributor to the rising tax burden on the economy. This will be at a post-war high of 37.7 per cent of output by 2028, it estimates.
The stealth raid is, however, vital to Hunt meeting his goal for debt to fall as a percentage of economic output by that time.
Pushpin Singh at the Centre for Economics and Business Research said unfreezing allowances in the Budget would hit public finances by more than £50 billion but this could be clawed back via efficiency savings.