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?

What should we expect from Chancellor Jeremy Hunt’s Spring Budget? Future Publishing / Contributor via Getty Images

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.

But the UK Government only has a certain amount of room for manoeuvre and Hunt has already acknowledged that any tax cuts must be “sustainable” and “affordable”.

STV News takes a look at what to expect from Hunt in the Commons later on Wednesday.

What is likely to be the headline announcement?

They key announcement by Hunt is likely to be a 2p cut to national insurance.

The Times said the cut, worth £450 on average, would come in from April and the decision was taken after Hunt decided against reducing income tax.

The Resolution Foundation think tank said the combination of another 2p cut on top of the 2p reduction which came into effect in January would be worth up to £1,500 a year for employees.

But, combined with freezes in the thresholds at which national insurance is paid, it will mean that the biggest net beneficiaries are those earning £50,000, who gain a net £1,200, the foundation said.

Why can’t he go further?

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.

What does the Scottish Government want to see in the Budget?

Deputy first minister Shona Robison says Hunt should “prioritise the investment needed for Scotland’s people and public services”.

She doesn’t want to see the chancellor utilise his fiscal headroom to fund tax cuts, adding that he “must not repeat the mistakes of the Autumn Statement.

Robison said: “Key to that is funding for infrastructure. We’ve already committed £6.3bn of capital spending as part of the 2024-25 Scottish Budget, underpinning high-quality public services, creating jobs and supporting the economy.

“However, we are expecting a real-terms cut to our UK capital funding of almost 10% over five years, totalling around £1.6bn – enough to build a large hospital. Likewise our Financial Transactions budget – key to delivering affordable housing – has been cut by 62%.

“With the UK now in recession, capital investment to kickstart economic activity is needed now more than ever. Infrastructure is vital for jobs, economic growth and the path to net zero. That’s why I am urging the Chancellor to deliver the capital funding Scotland needs.”

Meanwhile, SNP Westminster leader Stephen Flynn urged the chancellor to boost NHS spending by £15bn to create an additional £1.2bn for Scottish health spending through Barnett consequentials.

What else is likely to be in the Budget?

A £360m investment in advanced manufacturing projects across the life sciences, automotive and aerospace sectors is set to feature in the Budget as well as a package of £800m intended to boost public sector productivity.

Hunt has also announced changes to pension regulations, including a requirement for funds to declare how much they invest in UK companies, in order to “focus minds” and boost investment in British businesses.

And fuel duty is likely to remain at its current rate, keeping the “temporary” 5p cut which has been in place since 2022.

Paris Gourtsoyannis
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.

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