- Reports suggest Jeremy Hunt is considering holding two Budgets to usher through tax cuts before the next general election (Source: Financial Times)
- Cuts to individual taxes such as income tax or inheritance tax could be among those considered, as well as cuts to business taxes to boost the economy
- Which of these are cut, and to what extent, will depend on the fiscal headroom the chancellor has available come 6 March
- Changes to the Lifetime ISA (LISA) would be a small but sensible reform for savers
Tom Selby, director of public policy at AJ Bell, looks at the tax cuts which could be on the table for Jeremy Hunt at the Spring Budget:
“Jeremy Hunt seems to be dead set on slashing taxes in 2024, with potentially two major fiscal events pencilled in before we hit the general election, likely in the second half of the year. The most obvious area to focus on would be income tax. The decision to freeze income tax allowances has already dragged millions of Brits into paying more in tax, with the respected Institute for Fiscal Studies (IFS) reporting last year that the overall tax burden is at the highest level since records began.
“That is clearly not an ideal election message for a party which usually campaigns on a platform of small state and low tax, and Hunt signalled his intent by reducing National Insurance (NI) rates in his Autumn Statement. If the goal is to put more money in people’s pockets ahead of the general election, unfreezing income tax allowances would be the simplest way to do it. Alternatively, the chancellor could opt for a headline grabbing reduction in income tax rates, although this would create unwelcome complexity, as we have seen with reforms to the income tax system in Scotland, and would also be hugely costly for the Treasury.
“If the chancellor wants to help first-time buyers, he could look to supercharge the Lifetime ISA. The product allows prospective house buyers aged 18-39 to build a deposit by subscribing up to £4,000 a year, with a 25% annual government bonus worth up to £1,000 added automatically. Once you have a LISA you can keep putting money in and receiving the bonus until your 50th birthday. You are then able to access your funds tax-free either to buy a first home valued at £450,000 or less, or waiting until your 60th birthday. You are allowed to take the money sooner if you become terminally ill. However, if you access the money for any other reason, you are hit with a 25% early withdrawal charge which means you could get back less than you originally invested. Expanding the age range, increasing the minimum deposit limit or reducing the early withdrawal charge would all make the LISA more attractive to first-time buyers and potentially self-employed retirement savers too. This is a small but sensible reform which wouldn’t cost the Treasury a huge amount, but would provide a boost for savers.
“Inheritance tax could also be in the chancellor’s sights at the Budget. The tax, while only directly affecting a small proportion of UK households, is widely disliked, so increasing the thresholds at which it is applied – or even abolishing it altogether – could be a popular pre-election giveaway.
“As well as looking at tax on individuals, the chancellor might also explore tax cuts for business in an effort to boost the economy. There are lots of ways to do this, like cutting employer NI, reducing headline rates of corporation tax or putting tax breaks in place for companies that invest in growth.
“One area we are not anticipating major reform is pensions taxation. The government has already announced significant reforms to the pension tax system in recent years, increasing the amount Brits can contribute each year tax-free and announcing the abolition of the lifetime allowance. Those reforms have been welcome, making it easier for savers to build a retirement pot that can support their desired lifestyle in retirement.”
