£56bn Budget boost as tax cut calls intensify

A SHARP fall in energy prices and brighter economic outlook will give Jeremy Hunt a £56bn boost in next month’s Budget, a leading think tank has said, as campaigners call for tax cuts.

The Institute for Fiscal Studies (IFS) said plunging wholesale gas costs and more “tax-rich” growth, particularly from workers and businesses paying additional income and corporation tax, will help the UK to avoid the prolonged recession predicted a few months ago.

The IFS analysis shows public borrowing this financial year on course to be £31bn less than forecast by the Office for Budget Responsibility in November and £25bn lower in 2023-24. The findings are likely to renew calls for action in the Chancellor’s March 15 Budget to dampen the impact of a “double whammy” of the removal of investment incentives and an increase in corporation tax, which is due to rise by 6 percentage points to 25pc in April.

Brian Mcbride, president of the Confederation of British Industry, warned this week that “such a stark rise” in corporation tax “will be an immediate red flag” for companies looking to invest.

The IFS said that the corporation tax rise “won’t raise as much as what it does in the short run”, over the medium and long term, signalling that projected revenues will fall short of Treasury forecasts as firms seek to minimise their bills.

Falling energy prices means the cost of government support for households and businesses will drop to just £1.4bn in the next financial year, helping the Government save almost £11bn.

But the IFS warned the short-term borrowing boost would not allow for permanent spending rises, with higher inflation in future years likely to raise the UK’S debt interest bill as well as increase spending on working age benefits.

Isabel Stockton, an economist at the IFS, said: “Short-term savings cannot finance permanently higher spending.”

The IFS also said tax rises or spending cuts would be needed for the Government to end public sector pay disputes. It said handing workers a consumer price index-matching 5.5pc pay award would add £5bn to the pay bill.