Jeremy Hunt has gambled his budget on a £10bn national insurance cut funded by scrapping non-dom rules and other revenue-raising measures that will push taxation to the highest level since the second world war.
In what could be the last major economic intervention before voters go to the polls, the chancellor said the government was making progress on its economic priorities and could now help hard-pressed families by permanently lowering certain taxes.
However, his budget will still leave tax as a share of national income at 37.1%, the highest since 1948, according to official forecasts.
The two-percentage-point cut for 27 million workers comes after an identical reduction in national insurance in the autumn statement. The total reduction is worth about £900 a year to the average worker, and means earners will now pay 8% of their taxable salary in national insurance contributions, down from 12% in 2023.
“We will continue to cut national insurance contributions as we have done today so we truly make work pay,” Hunt told MPs. “We stick to our plan with a budget for long-term growth; it delivers more investment, more jobs, better public services and lower taxes.”
Labour, however, accused the Conservatives of having overseen 14 years of economic failure. Keir Starmer, the party leader, called the budget “the last desperate act of a party that has failed”.
He added: “An economy smaller than when the prime minister entered Downing Street – the textbook definition of decline – that is their record. I mean, after 14 years, who do they actually think feels better off?”
In an attempt to reboot the Conservatives’ flatlining performance in opinion polls, Hunt declared that his national insurance giveaways in the budget and autumn statement would allow workers to keep about £21bn more of their earnings than would have otherwise been the case.
However, Hunt chose to keep in place a six-year freeze on income tax thresholds, introduced by Rishi Sunak in 2022. Official figures showed that Wednesday’s tax cuts would only reverse about half of a £41bn increase in revenue for the exchequer from the freeze, which drags workers into higher income tax brackets as wages rise.
Announcing a further series of revenue-raising measures to fund his plans, the chancellor said he would abolish current tax breaks for “non-doms” to raise £2.7bn a year, alongside other increases, including the extension of a windfall tax on oil and gas companies.
The oil and gas tax change has already caused upset on the Conservative benches, however. Douglas Ross, the Tory leader in Scotland, is reported to have had a “heated” row with Hunt andSunak over the policy.
And less than an hour after the chancellor finished speaking, Andrew Bowie, an energy minister and Scottish MP, tweeted: “I agree with Douglas … the extension of the EPL [windfall tax] is deeply disappointing. I will be working with him to resolve this.”
There were also giveaways for the wealthiest, as the higher rate of capital gains tax imposed on property sales was reduced by four percentage points, from 28% to 24%. In a move designed to appeal to middle earners, the chancellor also announced plans to increase the threshold at which parents start paying the high-income child benefit charge from £50,000 to £60,000.
Hunt also extended a temporary cut in fuel duty, worth £3bn in 2024 for motorists.
In a highly political move, the chancellor appropriated Labour’s flagship policy on taxing “non-doms”, pointing out that the opposition would have used the measures to finance its spending plans. “We use that revenue to help cut taxes on working families,” he said.
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Labour had planned to use the money raised to pay for creating more GP and dentists’ appointments, among other measures.
Starmer said Labour would back the cut in national insurance, leaving him the option of raising other taxes to pay for his spending plans or dropping them altogether.
Promising to lay the groundwork for economic growth, the chancellor announced updated forecasts from the Office for Budget Responsibility (OBR) upgrading the UK’s growth outlook after a faster than expected fall in inflation. Economists say much of that growth will come from higher immigration, after the OBR raised its medium-term forecast for net migration by 70,000 to 315,000.
With Britain’s economy in recession, the OBR estimates that growth will pick up to 0.8% before rising to 1.9% in 2025.
The government will bring forward legislation from as early as March to enable the cut to national insurance to come into effect from April, in the hope that voters feel the benefit before the election.
The cut, which was widely expected, follows heavy lobbying by Tory backbenchers pushing for bumper pre-election giveaways, the hope being that a crowd-pleasing budget might help narrow Labour’s commanding lead in opinion polls.
The decision to prioritise tax cuts will, however, mean imposing a tougher austerity drive on government departments at a time when public services are crumbling, with elevated NHS waiting lists and councils facing bankruptcy.
Heralding a fresh austerity drive pencilled in for after the election, the OBR said Hunt’s plans meant funding for non-ringfenced government departments – including local government and prison services – was on track to fall by 2.3% a year.
The Treasury watchdog said the chancellor had held back £8.9bn in “headroom” to meet his self-imposed fiscal rule, which requires government debt to be falling in the fifth year of the OBR forecasts – one of the slimmest margins in recent history.
