Jeremy Hunt could provide UK taxpayers with welcome tax cuts this week, and speculation around which taxes he decides to cut in Wednesday’s Autumn Statement is reaching fever pitch.
Inheritance tax had been earmarked by commentators for a cut, but attention has quickly shifted to income tax as it has a broader impact on UK householders and is likely to win more votes.
However, cutting income tax comes with the risk of stoking inflation.
“Talk is now of a cut in income tax rather than inheritance tax, alongside an extension of the current generous business investment allowance. Any give-away, however, is likely to be limited with last-year’s mini-budget fiasco still fresh in the memory,” said Rupert Thompson, Chief Economist, Kingswood.
“The resulting near-term economic boost should be minimal, but the Chancellor will be hoping the political gains will be rather larger.”
Although tax cuts could be announced this week, they will not come into force until the end of the tax year, or even beyond that.
The Chancellor will want to be seen helping households with a lower tax burden but will also be conscious there are another two budgets before the next general election. He will want to keep his powder dry and save any major vote winners for Rishi Sunak’s election campaign next year.
By starting to cut taxes now, Sunak can claim he has overseen a series of tax cuts in the run-up to the election, playing on traditional conservative values in a push to win back disillusioned voters.
“It’s the news that every taxpayer wants to hear ahead of this week’s Autumn Statement – the Prime Minister has declared that the time is now here for tax cuts. With the target of halving inflation safely in the bag, Rishi Sunak has swiftly moved into the crowd-pleasing agenda of deciding what handouts he and Jeremy Hunt can serve up on Wednesday,” said Laura Suter, head of personal finance at AJ Bell.
“Estimates of how much spare money the Government has to play with vary wildly, and we won’t know the true figure until the OBR releases its report this week, but we do know that Mr Hunt doesn’t have huge sums to play with. That means he’ll probably be looking for a goldilocks tax cut that boosts productivity, is popular enough that it appeases backbench MPs, doesn’t come with a huge price tag, and won’t risk fuelling inflation – it could be like finding a needle in a haystack for Treasury policymakers.”
“The list of taxes rumoured to be on the chopping block is long and gets longer by the minute in the run up to the fiscal update. But clearly income tax will be the most popular tax cut with any worker: it affects the majority of workers, is easy to understand and has a direct impact on the money you take home each month.”