UK’s Jeremy Hunt to announce tax cuts aimed at reviving stagnant economy

Laura Trott, a minister in Hunt’s Treasury, told BBC News on Tuesday that the finance minister will announce cuts to personal taxes on Wednesday as the economic outlook has “completely changed.”

“The economy is in a very different place to where we were a year ago. We can now focus on going for growth, pushing up the growth rate of the economy and cutting taxes for individuals.”

Prime Minister Rishi Sunak’s government will be keen to offer some positive news to voters, who have been hammered by high inflation and sluggish growth in recent years, ahead of a likely general election in 2024. The main opposition Labour Party currently holds commanding leads in the polls.

– Elliot Smith

Hunt will announce an increase to the National Living Wage of more than £1,800 ($2,253.78) per year for a full-time worker, and extend the threshold to cover 21-year-olds for the first time.

The increase of almost 10% will take hourly pay to £11.44 an hour, while National Minimum wage rates for younger workers will also rise, with 18-20-year-olds receiving an hourly boost of £1.11 to take the minimum wage to £8.60 per hour.

The Department for Business and Trade estimates 2.7 million workers will directly benefit from the National Living Wage increase.

– Elliot Smith

Hunt is set to announce a cut to National Insurance contributions for millions of workers on Wednesday, along with a reduction in business taxation and tougher treatment of benefits claimants, multiple British news outlets reported Tuesday.

The BBC reported that Hunt will announce measures to boost business investment by £20 billion ($25.04 billion) per year in a bid to “get Britain growing.”

The government has also pre-announced plans to withdraw support for benefit claimants who fail to find work after 18 months, unless they undertake a work experience placement.

– Elliot Smith

Sticky global inflation and domestic supply-side challenges mean the government is unlikely to break from the cautious approach seen over the past year, according to Berenberg Senior Economist Kallum Pickering, who said Hunt faces “too many problems, too little time.”

Despite the suggestion of incoming tax cuts on Wednesday, Pickering said Hunt will struggle to announce policies that could “materially improve the near-term economic outlook,” and will likely focus on reducing the deficit and debt as a percentage of GDP.

“Any large and immediate debt-financed tax cuts or spending increases would likely stoke fresh inflation worries and a renewed spike in government borrowing costs, rather than boosting growth hopes,” Pickering said in an email Tuesday.

“Looking further out, Hunt may set out plans to cut taxes more quickly from 2026 onwards once inflation risks have further subsided.”

However, he noted that any such delayed tax plans would only be implemented after the country’s next General Election, due before the end of January 2025 but likely to be called late next year.

With the main opposition Labour Party holding a commanding lead in the polls, any forward-looking tax changes announced on Wednesday may never materialize.

– Elliot Smith

Speculation has abounded in the British press in recent days that Hunt could be set to announce a cut to the U.K.’s inheritance tax.

Inheritance tax is a 40% levy on the value of the estate of someone who dies, including their property, money and possessions, exceeding the minimum threshold of £325,000. The tax is only charged on the excess above the threshold, and only around 4% of estates in the U.K. are subject to it.

“There are dozens of tax cuts that would be some combination of more equitable and better designed to promote economic efficiency and growth,” said Paul Johnson, director of the Institute for Fiscal Studies.

“We are in the middle of a record-breaking increase in the tax burden on income and earnings. Effective tax rates on wealth have been falling for decades. A cut in the tax on inherited wealth looks particularly ill-timed.”

The IFS estimates that the rumored cuts would raise a “relatively paltry” £7 billion per year, and about half the total is paid by the 1% of estates valued at more than £2 million.

“As you’d expect, the beneficiaries of bequests big enough for inheritance tax to be paid are much more likely themselves to have high earnings and high levels of wealth than the average: those from better-off backgrounds earn more and accumulate more wealth even before they benefit from any inheritance,” Johnson explained.

– Elliot Smith

The Treasury last week announced £4.5 billion in funding for British manufacturing to boost investment in eight sectors across the U.K., available for a five-year period from 2025.

This includes £960 million for clean energy, over £2 billion for the automotive industry, £975 million for aerospace and £520 million for life sciences manufacturing.

The entire manufacturing sector makes up over 43% of all U.K. exports and employs around 2.6 million people, and Finance Minister Jeremy Hunt said the government was targeting funding to “support the sectors where the U.K. is or could be world-leading.”

“Our £4.5 billion of funding will leverage many times that from the private sector, and in turn will grow our economy, creating more skilled, higher-paid jobs in new industries that will be built to last,” Hunt said in a statement.

– Elliot Smith