Chancellor Jeremy Hunt is reportedly considering cutting taxes in his Autumn Statement on 22 November amid signs the UK economy is improving.
Inflation fell to 4.6 per cent in October, and considerably higher tax receipts as a result of high inflation have given the Chancellor more room for giveaways.
Other options being considered include cuts to inheritance tax, but there could also be cuts to benefits.
Mr Hunt told Sky News on Sunday that “everything is on the table” in the Autumn Statement when asked about the possibility of cuts to inheritance tax.
“I am not going to talk about any individual taxes because that will lead to even more fevered speculation as to what I might do… what I will give you is a general view about tax,” he continued.
“It is too high, the Conservative government wants to bring it down because we think that lower tax is essential to economic growth.”
What tax cuts is Jeremy Hunt considering?
Mr Hunt, alongside Prime Minister Rishi Sunak, is reportedly considering cutting income tax and national insurance in the upcoming Autumn Statement.
It has been suggested that income tax thresholds, which were set to remain frozen until 2028, could be adjusted to boost wider income.
The Times reports that multiple sources have suggested that the higher-rate income tax threshold, when people begin paying the 40 per cent rate, could be raised from its current level of £50,271.
Mr Sunak also previously pledged when he was Chancellor to cut 1p off the basic rate of income tax, which is currently 20 per cent, and pledged during his Conservative leadership campaign to bring it down to 16 per cent by 2029.
Mr Hunt has already begun warming to the idea of tax cuts, telling The Telegraph on Saturday that “this is an Autumn Statement for growth”.
He said: “The big message on tax cuts is there is a path to reducing the tax burden and a Conservative government will take that path.”
How will Jeremy Hunt pay for these tax cuts?
Mr Hunt is reportedly more open to tax cuts because there are signs the economy is improving, and because he has more room for manoeuvre than he did at the Spring Budget.
The Office for Budget Responsibility (OBR) will publish its full fiscal forecast alongside the Autumn Statement, and it’s expected that it will show that the Chancellor has billions more to play with.
The extra money is due to higher income from taxes, as well as the falling costs of paying for government debt.
It has been reported that, as of the weekend prior to his statement, Mr Hunt’s additional spending power had grown to £25 billion before any spending measures are factored in.
What impact will cutting taxes have on inflation?
There are concerns that handing out tax cuts could stoke inflation, which has fallen to 4.6 per cent, which could lead to the Bank of England keeping interest rates higher for longer.
It has been reported that the Government is considering offsetting any tax cuts by using October’s inflation figure of 4.6 per cent, rather than September’s inflation figure which is 6.7 per cent, to uprate benefits.
The Government usually uses September’s inflation date to set the increase.
Asked about the possible move in an interview with the BBC, the Chancellor said: “We will always be a compassionate Conservative government but part of how we make our economy successful is by making sure companies like this company can find the staff they need.
“Nearly a million vacancies across the economy, so we do need to reform our welfare system.”
This change would give the Treasury around £3bn extra to spend, and would also dampen any inflationary impact of tax cuts.
But Mr Hunt has insisted that he won’t consider any measures that stoke inflation, which is still more than double the Bank’s 2 per cent target.
“The one thing we won’t do is any kind of tax cut that fuels inflation,” he told Sky News.
What other tax cuts is Jeremy Hunt considering?
The Chancellor is reportedly considering cutting inheritance and business taxes, according to multiple outlets.
However, it has been suggested that these cuts could be delayed until his Spring Budget, amid concerns that an inheritance tax cut could be seen as a giveaway to the wealthiest in society.
While it is not clear what business taxes the Chancellor could cut, one option would be extending the “full expensing” policy for businesses.
It was announced in the Spring Budget that firms can offset 100 per cent of the money they spend on new machinery and equipment against their profits.
This policy was due to expire at the end of the 2025 tax year, but Mr Hunt could extend it or make the change permanent.
The Chancellor has rejected calls to reinstate VAT-free shopping for overseas visitors and plans to offer first-time buyers more mortgage support also expected to be delayed until next year.
