Chancellor to announce tax cut saving average worker £450

Chancellor Jeremy Hunt is set to offer a pre-election tax giveaway for millions of workers when he unveils his Budget on Wednesday.

Both Hunt and Prime Minister Rishi Sunak have consistently hinted at tax cuts as they seek to offer voters an incentive to stick with the Tories at the next general election.

They key announcement is likely to be a 2p cut to national insurance – worth £450 to someone earning the average salary.

Explainer

What should we expect from Chancellor Jeremy Hunt’s Budget?

Hunt set to use his Budget to offer a pre-election tax giveaway for millions of workers – but how big will the cut be?

This adds up to £900 when combined with the same cut that was made in the autumn statement.

Hunt has already said that any tax cuts must be “sustainable” and “affordable”.

The Chancellor will reportedly announce a 2p cut to National Insurance contributions in tomorrow’s Budget.

Based on forecasts from last autumn, that tax cut would not – by itself – be enough to prevent taxes as a share of GDP from rising to record levels in 2028-29. pic.twitter.com/NQLqdl3aAr
— Institute for Fiscal Studies (@TheIFS) March 5, 2024

He is widely reported to have defied calls from some in Downing Street and many Conservative MPs to reduce income tax, which is more expensive but better understood by many voters.

They were concerned another national insurance reduction would not be enough to boost Prime Minister Rishi Sunak’s party’s dire poll ratings, after the last one failed to move the dial.

Why can’t he go further?

Final days of Budget prep… pic.twitter.com/icNE4UlLqN
— Jeremy Hunt (@Jeremy_Hunt) March 5, 2024

Remember Liz Truss and Kwasi Kwarteng’s disastrous ‘mini-budget’?

Well, that spooked markets and sent the pound plummeting to a record-low.

In other words, the former PM and her chancellor overpromised with their unfunded tax cuts and sparked an economic crisis.

Hunt is bound by his self-imposed fiscal rules, which include having national debt as a share of gross domestic product (GDP) falling by the end of a five-year period.

The gap between his tax and spending plans and the limits set by this rule is known as the headroom.

As well as potentially eating into this headroom – leaving less of a buffer to cope with unexpected events – Hunt is likely to tinker with a few taxes to raise some extra cash.

The non-dom tax status for wealthy overseas individuals could be changed or scrapped and a levy on vapes could also help fill the Treasury coffers.

Insight Paris Gourtsoyannis Westminster Correspondent

Normally there’s some uncertainty before a Budget, but this much is clear: there will be tax cuts in Wednesday’s budget.

The chancellor is under huge pressure from Conservative MPs to give them something to sell to voters ahead of a general election later this year.

It’s expected that will come in the shape of another cut to national insurance across the UK, following the 2p cut announced last year, which is already in workers’ pay packets.

The real question is, how will that be paid for? The UK is in a recession and money is tight for the chancellor, too.

He’s going to have to squeeze out every spare penny and pound – some other taxes may need to rise.

There’s speculation that the windfall tax on North Sea oil and gas companies may be extended – that would be a big blow to the Scottish Conservatives in the northeast.