Jeremy Hunt has fired the starting gun on the Conservatives’ general election campaign with what he hailed as the biggest package of tax cuts since the Thatcher era, including a boost for 27 million workers.
The chancellor announced a higher-than-expected 2 per cent reduction in national insurance contributions, which he said would save the average worker £450 a year.
But even as he was on his feet unveiling the plans, the Office for Budget Responsibility (OBR) sharply downgraded its economic forecasts, predicting lower growth and warning that inflation will stay higher for longer.
It also said Britain is still on course for the highest overall tax burden since the Second World War, despite Mr Hunt’s giveaways.
The chancellor declared his autumn statement would help “turbo-charge” the economy, but the Institute for Fiscal Studies (IFS) cautioned that his plans were bad for growth, as it accused him of “good politics” rather than “good policymaking” for plumping for a pre-election tax giveaway.
Tory MPs largely welcomed the measures but some warned they did not go far enough, calling for more “radical” moves.
Mr Hunt did not rule out cutting income tax at the next Budget in spring “if it is responsible to do so”.
Meanwhile, former chancellor George Osborne said the surprise move to bring forward the national insurance cut from April to January showed Rishi Sunak was “opening the door to a May election”.
It came as:
- Mr Hunt made a £11bn-a-year tax break for firms permanent and cut taxes for the self-employed
- The chancellor maintained the triple lock, meaning state pensions will rise by 8.5 per cent
- He confirmed benefits would rise in line with September’s 6.7 per cent inflation figure
- He also extended a freeze on alcohol duty and boosted the living wage to £11.44 an hour
- But he unveiled a benefits crackdown campaigners warned will “punish” the disabled
- Rachel Reeves used The Independent’s Saatchi & Saatchi scoop to attack the Tories
- Ministers are considering selling off shares in NatWest to the general public in the wake of the Nigel Farage “debanking” scandal
Taken together, Mr Hunt boasted, his measures were the largest package of tax cuts since the 1980s.
But the OBR figures revealed a stealth tax bombshell which will see the Treasury take in £200bn over six years, following a freeze in the thresholds at which workers pay national insurance and other taxes or enter a higher tax bracket.
The IFS also said the national insurance cut would be “almost entirely offset” by the freezes, due to so-called “fiscal drag”.
A full-time worker earning the average salary of £35,000 per year will gain £449 from the cut, the IFS said, but it would be almost wiped out by £413 in extra tax due to frozen thresholds.
IFS director Paul Johnson said average earners will benefit “slightly” from the change but “low earners and high earners will still be worse off”. Torsten Bell, the chief executive at the Resolution Foundation think tank, said: “The truth is taxes are up not down. Today’s cuts are dwarfed by tax rises already underway.”
The OBR also warned of public service cuts ahead. Mr Hunt’s plans left £19bn-worth of real-terms spending cuts to come, it said. Despite the tax cuts, the tax burden will rise every year to reach a post-war high by 2028-29, the OBR figures also show.
The news risks enraging Tory MPs on the right of the party, who have long piled pressure on Mr Hunt over rising taxes.
Labour accused the Conservatives of 13 years of mismanagement of the economy, including the NHS, warning too many workers were languishing on health service waiting lists.
Shadow chancellor Rachel Reeves called time on Mr Sunak’s government – and highlighted The Independent’s revelation that ad giant Saatchi & Saatchi no longer backed the Tories – as she declared that the “ravens are leaving the tower”.
Meanwhile, pensioners who feared that Mr Hunt might wiggle out of the triple-lock promise – whichever is highest from inflation, earnings or 2.5 per cent – breathed a sigh of relief. The state pension will rise by 8.5 per cent, in line with inflation, in a move worth up to £900 a year.
Benefits will also rise with inflation, despite speculation ministers could have used a lower rate to save money.
Under a welfare crackdown, those who do not look for work face, after a certain amount of time, having their benefits cut off, including access to free prescriptions and legal aid.
The work capability assessment for those with health conditions and the disabled will be reformed “to reflect greater flexibility and availability of home-working”, in a move that has led charities to hit out at Mr Hunt.
While Tory MPs welcomed the measures, they were downbeat about the chances they would transform their party’s fortunes. One former cabinet minister said: “It won’t change the direction of travel but hopefully help at margins”.
Another ex-minister welcomed the measures, but added that they were “not enough” to save the party seats at the election.
Tory grandee and former cabinet minister David Davis said the autumn statement was “pretty good” but he was concerned about so-called fiscal drag pulling millions into higher tax thresholds. “If we win the next election, that will become a big campaign issue for me,” the ex-cabinet minister said. Senior Tory MP David Jones told The Independent he hoped “more radical” tax cuts would come in the spring budget, while backbencher Ranil Jayawardena – a leading figure in Liz Truss’ tax-cutting camp – urged Mr Hunt to help the “squeezed middle” by cutting income tax in spring. Ex-Tory minister John Redwood also said more tax cuts would be needed “in due course”.