It’s Budget time once more, but how much does next week’s really matter? Is this the tentative pre-election fiscal event to merely set out the terrain and boundaries of the public finances while reserving ammo for the long campaign? Or is it the big, all-important last pre-election moment, where the goodies are doled out along with nasty traps set for the opposition?
Jeremy Hunt may not know the answer for sure, as he puts the final touches to his statement this weekend.
For now, it doesn’t particularly matter which mould this Budget fits. With the Conservatives still battling to make headway in the opinion polls, boldness is the only viable option. Holding back fiscal firepower or ideas for a potential future event later this year would be a mistake – especially as the economic picture remains volatile. So what is on the menu for the Chancellor to announce next Wednesday? What should he pick, and what should he avoid?
First up is personal taxation. Even after November’s big cut to National Insurance, the burden remains alarmingly high and more needs to be done to aid working people. Slashing income tax – as Rishi Sunak mooted during his first leadership bid – is one option, but it risks stoking inflation when it’s still double the Bank of England’s target.
What makes more sense is to return to what worked last year and take 1p or 2p off NI, depending on the headroom available. It rewards those in work and encourages people back into employment and firms to create jobs. Plus it’s a tax cut that the Office for Budget Responsibility puts down as a growth measure.
Next on the list is tackling non-dom status, which the Chancellor is rumoured to be thinking of ending or curtailing. The controversial regime, which allows foreign nationals based here to avoid paying UK tax on overseas income, was introduced to make the City of London internationally competitive and encourage those with big pockets to our shores. But the scheme has been dominated by so much controversy in recent times that high-net-worth individuals shun it to avoid being tarnished.
Politically, it is appetising for Hunt. Few are going to weep over a generous tax regime for the very wealthiest. It is an obvious revenue raiser for the Chancellor – handing him £3.6bn to be used for domestic purposes. It would also cause huge headaches for Labour, as one of the few bonafide revenue raising measures that the party has committed to. If non-dom status is scrapped (or significantly amended), Shadow Chancellor Rachel Reeves’ fiscal plans will be in tatters. If Hunt acts, he must ensure enough is done to keep the City an attractive place for talent.
While thinking about tax, Hunt should look at the most hated tax in the land (and not the one on inheritance many Conservative MPs are eager to slash). Stamp duty plays a significant role in thwarting the home-owning ambitions of those wanting to get on the housing ladder. In one of the few measures left over from Liz Truss’s brief period in Downing Street, no duty is paid on properties of £250,000 or below. The threshold should be doubled to £500,000, taking 700,000 homebuyers out of the tax altogether, saving people thousands.
At a cost of about £3bn, this might come out of the fiscal headroom. But plenty of loopholes can be closed up at the top end of the property market to help fund the tax cut, including raising the surcharge on second homes and ending the tax reliefs for vacant homes, as Onward has argued.
If the Conservatives have any hope of winning back younger voters, the party must have a substantial offer to make home ownership more accessible. This is the most immediate, most viable route to make it happen. Boosting the potential to buy property is a measure that needs to happen now, even if the election comes later on.
And finally, Hunt should look at some fresh investment in public services – particularly improving the state of the community in places in need of levelling up. There is no chance that voters who backed the Tories for the first time in 2019 will consider doing so again unless more is done to tackle antisocial behaviour. The target of delivering 20,000 new police officers, promised back in 2019, was met but the numbers of neighbourhood policing officers has actually fallen. If the funds are available, a grant should be made to allow the Home Office to invest in a wave of community support officers across the country.
But one option on the menu Hunt should avoid is inheritance tax. It’s long been the hope of some on the right to slash or radically reform this hated tax. The price tag, however, is huge – some £15bn – and other options would have a far bigger, immediate impact on the economy. Above all, the principle should be to help working families. Which is why Hunt should look to keep the 5p fuel duty cut that is due to expire at the end of March. Ramping up the price of petrol now would prompt a huge backlash.
Hunt has the opportunity to seize the growth narrative with a combination of targeted cuts and investment, and kick the legs out from Labour’s few plans. Inflation is naturally still a concern – as is the Bank of England’s failure to cut interest rates as the economic cycle appears to be turning. And whether this is the last Budget before the polls or not, what happens next week will shape the campaign and what comes on the other side. It’s therefore time to be bold – and to be political.
Sebastian Payne is director of the centre-right think-tank Onward
What should be in the Budget (and what should Jeremy Hunt avoid)
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29.02.2024
It’s Budget time once more, but how much does next week’s really matter? Is this the tentative pre-election fiscal event to merely set out the terrain and boundaries of the public finances while reserving ammo for the long campaign? Or is it the big, all-important last pre-election moment, where the goodies are doled out along with nasty traps set for the opposition?
Jeremy Hunt may not know the answer for sure, as he puts the final touches to his statement this weekend.
For now, it doesn’t particularly matter which mould this Budget fits. With the Conservatives still battling to make headway in the opinion polls, boldness is the only viable option. Holding back fiscal firepower or ideas for a potential future event later this year would be a mistake – especially as the economic picture remains volatile. So what is on the menu for the Chancellor to announce next Wednesday? What should he pick, and what should he avoid?
First up is personal taxation. Even after November’s big cut to National Insurance, the burden remains alarmingly high and more needs to be done to aid working people. Slashing income tax – as Rishi Sunak mooted during his first leadership bid – is one option, but it risks stoking inflation when it’s still double the Bank of England’s target.
What makes more sense is to return to what worked last year and take 1p or 2p off........
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