What can we expect from the Spring Budget
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TOMORROW the Chancellor, Jeremy Hunt will present the Spring budget to Parliament, potentially one of the last before this year’s general election.
With the Conservatives currently drastically trailing Labour in the polls it is expected that Hunt will be using all the fiscal headroom the OBR affords him to try and woo back potential voters.
The Chancellor has been under pressure from certain sections of his own party to implement a more traditionally conservative low tax economy, calling for cuts to personal taxes like National Insurance and Income tax to put more money in people’s pockets and encourage consumer spending.
There’s been signs that is just what Jeremy Hunt plans to do, it was reported in January that the Government had cut their amount they were borrowing by £8.4bn from the previous year, in a bid rumoured to give them more headroom to afford tax cuts.
This is at least a sign that the government are taking a more careful approach to cutting taxes than the infamous mini-budget of Liz Truss and Kwasi Kwarteng that included wide tax cuts the pair had not said how they were going to pay for, leading to the pound plummeting and interest rates driving up after the markets were spooked.
It was only after Hunt replaced a fired Kwasi Kwarteng and reversed the tax cuts that the markets and the pound began to recover.
Speaking this morning at Chippenham, Jeremy Hunt, said: “We do want to move to a low tax economy, but we’re only going to do so in a way that is responsible and recognises that there’s things that taxes pay for, that we couldn’t cut taxes by borrowing.”
“If we can spend money on public services more efficiently that will mean less pressure on tax payers.”
However, it is feared that potential tax cuts could be detrimental to investment in public services with some accusing the Conservatives of poisoning the water in the likely chance that Labour wins the next general election.
Here are some of the things we know so far.
The Ever Continuing Fuel Duty Freeze
There’s speculation today that Jeremy Hunt plans to extend the freeze on fuel duty another year in what was initially supposed to be a temporary measure.
Hunt had extended the freeze in his previous budget and no government has raised fuel duty since 2011.
This current government in particular has been attempting to align themselves with motorists, hitting back against the introduction LEZ zones.
This was particularly prevalent in the Uxbridge & South Ruisplip by-election where Prime Minister Rishi Sunak credited the Conservatives stance against the widening of London’s Ulez zone being behind the surprise tory retention of the former Boris Johnson seat.
In Autumn it was revealed that Glasgow’s Lez zone is said to have the support of just one in four of its surveyed residents.
The Tories see motorists interests as a potentially lucrative wedge issue for that could be exploited in the coming election, if Hunt does extend the duty freeze tomorrow it would give motorists a pre-election tax break of £5bn.
The Institute of Advanced Motorists (IAM) had indicated that they were against the return of a 5p fuel duty citing the cost of living crisis being particularly restrictive to motorists.
However, they did say that if fuel duty went up by 1 or 2p and put towards a dedicated fund for pothole, acknowledging that local authorities are struggling with finances.
Neil Greig, director of policy and research at IAM, said: “The cost of motoring is a top worry for motorists these days, so anything that makes more predictable will be welcomed.
“However, this is a fuel duty freeze and not a fuel duty cut so it’s not likely to make that much difference in driver’s wallets.
“Particularly when the world wide price of oil is creeping back up again and that’s being reflected in fuel prices now.
“Low emission zones are getting a lot of older cars out of the streets of Glasgow city centre but people can still drive older vehicles around the rest of Scotland.”
Greig added: “There’s no doubt that a fuel duty freeze and investment in things like potholes repairs is a good thing for drivers, but it’s unlikely to change their views on the state of the economy and I think that’ll make the biggest impact on the upcoming election.
“I would love to think that motoring issues did tend to influence elections but they don’t tend to in my experience.”
This could then prove to be a dangerous gamble for Hunt, the policy would cost £14bn a year and likely could only be funded with a cut in spending in the public sector.
Cut in National Insurance
Amongst the biggest speculated features to this budget was a cut to National Insurance.
It looks likely that Hunt will cut NI tomorrow by 2p, putting an extra £450 into the average workers pay packets.
Such a cut would likely seek to incentivise consumer spending, hoping to inspire growth in the private sector as well as giving the impression that people have more money in their pockets ahead of a potential general election.
This prompted shadow paymaster general, John Ashworth suggesting that Rishi Sunak will attempt to call a snap general election off the back of it, entering into a £10 wager with Sky News’ Kay Burley this morning.
Speaking to Kay Burley, Ashworth said: “I don’t think that the public will believe Rishi Sunak and Jeremy Hunt, when they know that when they know Rishi Sunak has a record of whacking up tax.”
“Let’s see if they wipe out the 25 tax rises that they’ve imposed on working people.”
If Hunt does in fact cut National Insurance by 2p, then it would cost £10bn to the public purse and when his cut 2p cut from the Autumn began to effect pay it did little to invigorate support for the Tories with their current polling suggesting that they could only achieve 24% of the vote.
Perhaps an equally chancy gamble as Ashworth’s snap election wager, but a hell of a lot more costly.
What Else?
More traditional fiscal Conservatives may be disappointed if income tax is not cut, Hunt may decide its the safer and less costly personal tax of choice to cut NI given his current fiscal headroom.
But it may expose rifts in the Tories as the right wing of the party believe that its necessary to bring back disillusioned tory voters in traditionally safe seats, there’s a risk Jeremy Hunt himself could become the first chancellor to lose his seat, currently being outpolled by the Lib Dems.
But as the cut to NI in Autumn shows, there may be a lack of public appetite for tax cuts and a preference for investment in public services – maybe Hunt is aware of this and is in fact poisoning the water.
It’s not the only speculative action that Hunt could take has received accusations of being politically motivated, there’s also a suggestion he’ll filch overhauling non-dom tax loopholes, a Labour election pledge.
When questioned about it Hunt suggested we’ll just have to wait till tomorrow to see what’s in the red briefcase.
