Britain’s Conservative Party has switched into pre-election mode with a spring budget sweetened with a cut in national insurance and the promise of more tax cuts to come. The party also stole one of the opposition Labour Party’s flagship fiscal policies by abolishing a system of tax breaks for “non-doms”, wealthy foreigners who live in Britain and are domiciled abroad.
The budget delivered in the House of Commons on Wednesday by chancellor of the exchequer, Jeremy Hunt, contained few surprises, however. It also failed to deliver the income tax cuts coveted by many Tory MPs as a weapon for the general election this year that Labour is the favourite to win.
The budget, which also included a £35 billion (€41 billion) efficiency drive in public services, was rejected by Labour Party leader Sir Keir Starmer as a “Tory con” because so-called “stealth taxes”, such as rises in council taxes, are set to wipe out any gains for workers from the national insurance cut.
Mr Hunt’s flagship, well-trailed announcement was a two percentage-point cut in the national insurance rate, bringing the main rate down from 10 per cent to 8 per cent. He said this would put £450 (€526) back into the pocket of the average British worker, and follows a similar cut six months ago in the UK government’s autumn financial statement.
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He also signalled that, given the chance in future, he plans to completely phase out national insurance. He suggested it is an unfair tax on employment; national insurance is charged only on wages and not on passive income such as that earned from investments.
Although Mr Hunt did not deliver income tax cuts, he suggested that the UK is on a “path to lower taxes” in future. He announced 12-month freezes in alcohol and fuel duties and a levy on vaping.
Other measures that are likely to go down badly with traditional Tory voters include an increase in the duty paid by business-class air passengers and the abolition of tax breaks for second home owners who rent them out as holiday homes.
Mr Hunt also extended by a year, to 2029, a windfall tax on profits by North Sea oil companies, which he said would raise £1.5 billion. This move aped another Labour pre-election pledge.
However, it angered the Scottish National Party and also the Scottish Tory leader, Douglas Ross, whose Moray constituency in affluent northeast Scotland sits adjacent to the Aberdeen hub of the North Sea hydrocarbons industry. Mr Ross said he was “deeply disappointed” and would not vote for the legislation required to implement the measure.
The abolition of the controversial “non-dom” system, which gives tax breaks on worldwide income for UK residents who are tax domiciled elsewhere, had also been well-flagged in advance. The system has been used by, among others, Akshata Murty, the wife of prime minister Rishi Sunak, who recused himself from discussions on the policy, Downing Street confirmed.
The non-dom system will be replaced by a new regime based on residency with all previous non-dom beneficiaries due to pay the same tax as British citizens after four years’ residency.
Following the budget, Labour and the Tories traded barbs over Britain’s overall debt levels, which are still on the rise. Mr Hunt said UK government borrowing would fall over the next five years to 1.2 per cent of GDP, although Paul Johnson of the Institute for Fiscal Studies think tank said he would “take this with a pinch of salt”.
The UK economy is technically in a shallow recession, but growth is expected to resume later in the year at 0.8 per cent overall for 2024, according to the Office for Budgetary Responsibility.
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