Jeremy Hunt, has indicated that there will be limited space for tax cuts in the upcoming spring budget next month. This announcement comes shortly after the IMF cautioned the UK to prioritize the restoration of its public finances.
Chancellor Hunt's Tax Cut Challenge Amid IMF Caution
In November, Chancellor Jeremy Hunt made headlines by reducing the main rate of national insurance contributions for employees from 12% to 10%. Subsequently, there was widespread belief that he was preparing for another round of tax cuts, fuelled by hints dropped about the possibility of the Conservatives' final budget before a general election.
However, Hunt has now tempered expectations, stating on the BBC's Political Thinking with Nick Robinson podcast that the upcoming spring budget may not provide the same latitude for tax cuts as the autumn statement did. He emphasized the need for managing expectations and hinted at a more restrained fiscal approach.
“And so I need to set people’s expectations about the scale of what I’m doing, because people need to know that when a Conservative government cuts taxes, we will do so in a responsible and sensible way.” He added.
These remarks may be disheartening for certain Conservatives, particularly party MPs advocating for additional giveaways before facing off against Labour in elections. Nevertheless, Hunt emphasized the government's imperative to adopt a long-term perspective.
“It is not Conservative to cut taxes by increasing borrowing because all you’re doing is cutting the taxes paid by people today in exchange for increasing the taxes paid by our children tomorrow.”
His statements follow closely on the heels of a stern warning from the IMF to the chancellor, advising against tax cuts in the budget scheduled for 6 March. The IMF pointed out that any such tax reductions would likely necessitate additional borrowing or potential spending cuts after the elections.
Chancellor Hunt Aligns with IMF: Caution Against Unfocused Tax Cuts
The IMF, headquartered in Washington, emphasized the importance of the government directing its efforts toward enhancing critical sectors of public spending and addressing the financial aftermath stemming from the pandemic and the conflict in Ukraine.
Chancellor Jeremy Hunt concurred with the IMF's stance, stating that he agreed with their view that "untargeted tax cuts are just crowd pleasers" are not advisable.
This remark subtly alluded to the tumultuous mini-budget in September 2022, spearheaded by Lis Truss and Kwasi Kwarteng, which included unfunded tax cuts, causing market turmoil and a significant surge in UK borrowing costs.
"If the tax cuts are strategic and intelligent, that becomes a crucial element of our strategy to stimulate economic growth," he emphasized.
Hunt reiterated that tax reductions remained a pivotal focus for a Tory government. "It is imperative to convey that our desired trajectory is to alleviate the tax burden."