The early trailers in January 2024 for what is probably Chancellor Jeremy’s Hunt’s last ‘fiscal event’ featured Prime Minister Rishi Sunak promising “more to come” on tax cuts. At the time, Mr Sunak’s bullish viewpoint puzzled some commentators because the Treasury had yet to receive even an initial assessment of the UK’s financial health from the Office for Budget Responsibility (OBR).
As Budget Day neared, a mix of OBR computation and the government’s expectation management dampened down the speculation around tax cuts and suggestions emerged about the possibility of counterbalancing tax increases. It began to sound as if the government’s election strategy would rely more on fiscal responsibility and less on the reductions in NICs or income tax demanded by many of its backbenchers.
In the event, the Chancellor delivered both tax cuts and, to a lesser extent, tax rises. The headline 2024/25 tax cut was another two percentage point reduction in the main rates of NICs for employees and the self-employed, with an initial cost of £10 billion. At only about 5% of that outlay, the easing of the thresholds for the HICBC was a welcome (and surprise) reform.
Tax rises included the predicted ‘adopting’ of the Labour party’s plan to abolish non-domicile taxation from April 2025 and, from the same date, the end of the furnished holiday lets regime. Together, these are projected to yield a little under £3 billion by 2028/29.
Nevertheless, the OBR says that Mr Hunt will meet his fiscal rule of debt falling as a proportion of gross domestic product (GDP) in 2028/29, by which time total borrowing will
exceed £3,000 billion. The margin by which the Chancellor meets the rule is just £9 billion, which the OBR notes is “a tiny fraction of the risks around any forecast”.
Read the full statement here.