Tax cuts spark election talk
♦ Hunt slashes NI by 2p, putting £450 in workers’ pockets ♦ Giveaways cause speculation that UK will go to polls in May ♦ Scots Tory leader furious as oil and gas levy is extended
JEREMY HUNT is expected to unveil a 2p cut to National Insurance in today’s Budget, in a move that has caused speculation an early election could be called.
The Chancellor will today announce that he has chosen to cut National Insurance rather than income tax, saving workers £900 a year when combined with the cut announced last autumn.
He is expected to set out a number of revenue-raising measures to help pay for the cut, including scrapping or scaling back the non-dom scheme. There will be a new levy on vapes, tax relief will be scrapped for the owners of shortterm lets, and the windfall tax on oil and gas giants will be extended by a year.
Downing Street made the unusual decision to confirm the National Insurance cut, likely to be a centrepiece of the Budget, 24 hours ahead of the financial statement. The move raised questions over whether the Government had a surprise up its sleeve, as Labour fuelled speculation that Rishi Sunak was preparing to call an election in May.
Lord Mandelson, the architect of New Labour who helped Sir Tony Blair sweep to power, said such a move could help the Tories avoid a huge defeat, while Jonathan Ashworth, the shadow paymaster general, made a public bet that an election would be held in May. Some Conservative figures also raised the possibility, with Lord Finkelstein, a former political adviser to Lord Hague, whose former Richmond constituency is now represented by Mr Sunak, stating that a May election would be “the right thing to do”.
It is understood that the Government will bring forward legislation next week to ensure the National Insurance cut comes into effect in April. With the Bill enabling migrants to be deported to Rwanda also expected to pass this month, it could pave the way for a general election to be held on May 2, when there are local elections planned.
The decision not to cut income tax in today’s Budget would allow the Tories to present it as a manifesto pledge at the next election. One idea is a promise to reduce the basic level from 20p to 16p by the end of the decade, which Mr Sunak promised when he ran for Conservative leader.
Tory sources played down speculation of a general election, pointing to Mr Sunak’s previous comments signalling a vote in the second half of the year. They insisted that the National Insurance cut was a non-inflationary move that rewards workers.
Last night, Mr Hunt stressed that the Budget was designed to boost growth and put money back into the pockets of families. He said: “Because of the progress we’ve made, because we are delivering on the Prime Minister’s economic priorities, we can now help families with permanent cuts in taxation. We do this not just to give help where it is needed in challenging times. But because Conservatives know lower tax means higher growth. And higher growth means more opportunity”
However, his plans to extend the windfall tax caused a row north of the
Border, where Douglas Ross, the Scottish Tory leader, said it would hamper Tory election chances. Sources said Mr Ross had appealed to the Prime Minister not to go ahead with the extension in a “heated” face-to-face conversation at a pre-budget gathering of about 80 Tory MPS on Monday night.
They said the pair had a “robust exchange of views”, with Mr Sunak arguing it was required to make room for pre-election tax cuts in the autumn. Mr Ross made a direct appeal to the
Chancellor at the same meeting. Mr Ross is said to be determined to “call out” the move in a speech in the Commons this afternoon, after Mr Hunt delivers the Budget. About 90,000 Scottish jobs depend on oil and gas, mostly in the north east, and industry leaders have warned that extending the windfall tax would threaten investment.
Meanwhile, two former home secretaries criticised the Chancellor for cutting National Insurance rather than income tax. Suella Braverman told GB
News: “My preference would be 2p off the basic rate of income tax… Rishi Sunak himself promised to take a penny off the basic rate, and I would go further with 2p because I think that would really send the message that people will be able to keep more of what they earn.”
Dame Priti Patel said Mr Hunt should unfreeze income tax thresholds because it “is one area where, as Conservatives, we should do more to show that we back working households”.
Yesterday, Mr Ashworth, a Labour frontbencher, placed a bet on live television that Mr Sunak would call a general election to be held in May. He agreed a £10 bet with Kay Burley, the Sky News presenter, that the election would be held early, saying: “I think everything the Conservatives are doing... suggests to me that May is their preferred choice.”
Speaking on his podcast, How to Win
an Election, Lord Mandelson said: “The Conservatives… have an incentive to call an early election, partly because they think they might catch Labour on the hop. But secondly, it would put an end to the sort of endless Tory-faragist soap opera week in, week out.”
On the same podcast, his co-host Lord Finkelstein said: “I’ve always thought that it was the right thing to do to hold an election in May, but it’s become much, much less likely as we’ve moved closer.”
In March 1992, Norman Lamont unveiled a tax-cutting budget. The very next day, Sir John Major went to the Palace to ask the Queen to dissolve Parliament for an election on April 9. The Tories defied the pollsters and won.
The 2p National Insurance cut will be worth £450 a year for an average worker. When combined with the cut announced last year, it will add £900 a year on average for 27 million workers.
But the Institute for Fiscal Studies said the cut would not stop taxes from rising to record levels by the end of the decade.
The Chancellor had been hoping to cut income tax, but he was told by the Government’s spending watchdog on Friday night that he did not have enough “fiscal headroom” to do so responsibly. The Office for Budget Responsibility also said such a move would be inflationary.
It is believed Mr Hunt will also announce a new levy on vaping and an associated rise in tobacco duty, which will raise about £500million a year.
Tax breaks will also be reduced for people who own second homes which they rent out as holiday properties – raising about £300million.