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Hunt vows tax cut if Tories win polls

The chancellor argued that a Tory promise to cut taxes will be a major dividing line at the election, even though the overall tax load has risen to postwar highs under his party…reports Asian Lite News

Jeremy Hunt defended large-scale Conservative tax rises during this parliament, but insist that only his party will cut the tax burden if it wins the next general election.

The chancellor argued that a Tory promise to cut taxes will be a major dividing line at the election, even though the overall tax load has risen to postwar highs under his party.

“Labour like to criticise tax rises this parliament thinking people don’t know why they have gone up — the furlough scheme, the energy price guarantee and billions of pounds of cost of living support,” Hunt said.

Hunt’s speech in central London comes ahead of the release next week of official inflation data that the chancellor hopes will show inflation falling below the Bank of England’s 2 per cent target.

He sees this as a key moment for the economy. The Tories are trailing Labour by 20 percentage points in opinion polls and have worse ratings on the economy than Sir Keir Starmer’s party.

Hunt’s speech marks the opening skirmishes between the two main parties on the economy ahead of an election expected this autumn. On Thursday, Labour said creating “economic stability” would be its first priority if it wins.

The chancellor will claim Labour attacks on his party’s tax-raising record were “playground politics”, noting Starmer’s party had supported policies to help the UK through a series of economic shocks.

Despite recent cuts to national insurance, the Institute for Fiscal Studies think-tank has said “this remains a parliament of record tax rises”.

Meanwhile, Hunt on Thursday convened technology groups and regulators in an attempt to identify ways of making the country more attractive to the high-growth industry.

He hosted a summit at his grace-and-favour Dorneywood estate in Buckinghamshire to canvas executives’ views on what the government could do to retain tech groups in the UK and help them to grow.

One person at the summit said it was “very positive” and that a number of people stated they were planning to have initial public offerings in London.

However, the Treasury declined to say how many companies attended the event or provide names.

Some major companies — including Revolut, Klarna, Checkout.com and ClearScore — did not attend. The chief executive of one large tech group said he had not known the Dorneywood summit was being held.

Industry figures attending included Monzo boss TS Anil and Eben Upton, chief executive of Raspberry Pi, the computer maker on which hopes for a reopening of the London IPO market are pinned.

The Cambridge-based company said on Wednesday that it would seek a listing on the London Stock Exchange’s main market. It was valued at $597mn in November. 

The Treasury said the summit “focused on the offer that the UK has for innovative firms wanting to raise capital in the UK”.

One person at the meeting said tech bosses had challenged Nikhil Rathi, boss of the Financial Conduct Authority, to provide “clarity and certainty” on future regulation and to take a more “pro-growth” approach.

The UK has a record of developing more start-ups than other European countries but Hunt is attempting to overhaul London’s stock market rules to encourage more companies to grow and list in the country.

Sunak vows to remain an MP even if Tories lose election

Prime Minister Rishi Sunak has vowed to stay on as an MP even if his ruling Conservative Party loses the next general election.

The PM said his North Yorkshire constituency is “wonderful” and “of course” he will remain in Parliament whatever the outcome when he goes to the country.

There has been speculation that Sunak, who previously worked at a hedge fund in California, could be eyeing a job in Silicon Valley as the Tories trail by more than 20 points in opinion polls.

But asked on ITV’s Loose Women whether he would stay on as an MP if the party loses, the MP for Richmond (Yorks) said: “Of course I’m staying. I love being an MP. I love my constituents, I love my home in North Yorkshire.”

Elsewhere in the show, which Sunak claimed was “one of the more intimidating things” he had done over the course of his job, Sunak conceded that “we’re not there yet” in terms of the progress he wants to make before calling an election.

He has dismissed demands for a change of political course after the Tories suffered a drubbing in the local elections earlier this month, saying he is “determined more than ever to show the public that what we’re doing is making a difference” on issues including the economy and migration.

“I’ll happily come back and talk to you during the election. But I am focused on that, I am focused on the choice of that election,” he told the panel.

“We’ve been through a lot but I do think actually the things we are doing are starting to make a difference. We’re not there yet, of course”.

ALSO READ-Tories will commit to pensions triple lock, says Hunt

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Tories will commit to pensions triple lock, says Hunt

Hunt confirmed the current triple lock system to decide how much the payments rise each year would “absolutely” remain if the Conservatives win the general election, which must be held by 28 January 2025, for the whole of the next parliament…reports Asian Lite News

Jeremy Hunt has said the Conservatives will keep the triple lock system to decide rises in the state pension if they win the election. The chancellor confirmed the policy pledge, which means the increase in the state pension is the highest of average earnings growth, inflation or 2.5%.

He told Sunday with Laura Kuenssberg he was confident the “expensive” promise would be paid by growing the economy. Labour said it was “committed to retaining” the triple lock.

However the party is yet to confirm if the pledge will feature in its election manifesto. “We will set out those plans for our manifesto in detail,” Labour party chair Anneliese Dodds said. The state pension is to rise by 8.5% in April.

Hunt confirmed the current triple lock system to decide how much the payments rise each year would “absolutely” remain if the Conservatives win the general election, which must be held by 28 January 2025, for the whole of the next parliament.

“When we came to office in 2010, pensioners were more likely to be in poverty than other income groups, now because of the triple lock that we introduced they are less likely to be in poverty,” he told the BBC.

“I think that is a very important social change because unlike adults of working age, pensioners can’t work, they have retired and so we need to respect that.”

Hunt said he realised continuing the policy would be an “expensive commitment”, but added: “You can only make that commitment if you’re confident that you’re going to deliver the economic growth that is going to pay for it.”

In response to Mr Hunt’s confirmation, Liberal Democrat Treasury spokesperson Sarah Olney said the pledge was a “shameless election trick by the Conservatives” and claimed Mr Hunt was “yet again taking pensioners for granted”.

Labour leader Sir Keir Starmer declined to say if the triple lock would be in his party’s manifesto when asked by The Sun newspaper last week.

“We will have to see what the state of the economy is as we go into the election. We will publish all of our plans as we go in and answer that question, but I believe in the triple lock.”

The state pension is a payment made every four weeks by the government to people who have reached the qualifying age and have paid enough National Insurance contributions. More than 12 million people in the UK receive it.

Currently, the pension is worth £203.85 a week for the full, new flat-rate (for those who reached state pension age after April 2016), and £156.20 a week for the full, old basic state pension (for those who reached state pension age before April 2016).

In April, the two payments will rise to £221.20 and £169.50 per week respectively, taking the annual totals to £11,502 and £8,814.

Next month’s increase is set to be the second significant rise in the state pension in two years, after a 10.1% increase in April 2023.

The triple lock is designed to ensure pensioners, especially if they rely solely on the state pension, are able to afford rising prices, or keep pace with the increases in the working population’s wages.

It was introduced by the Conservative-Liberal Democrat coalition government in 2010, but there has been debate over whether it can continue in the long-term future due to its costs. The state pension cost £110.5bn in 2022-2023, just under half the total amount the government spends on benefits, and the government’s official forecaster, the Office for Budget Responsibility, estimated the level would grow to £124bn in 2023-2024.

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Hunt hints at Oct election

The chancellor also hinted that he would like to freeze fuel duty again and said he hoped to hold another fiscal event before the election…reports Asian Lite News

The chancellor, Jeremy Hunt, has suggested a general election could be held in October. Speaking in the House of Lords, Hunt said the Treasury would need time to push through a review of Whitehall budgets before next spring, making an October date the last time when an election would be possible.

“This particular spending review has to be completed before next April, when the next financial year starts. And if the general election is in October, that will mean it’s very, very tight,” he said.

Whitehall budgets were agreed for three years in 2021 and the Treasury has been under pressure to conduct a review since last year to give departments some certainty about their income at least five years ahead.

Hunt’s comments came as No 10 announced that Rishi Sunak would host a European summit in July where he will try to corral leaders to take tougher action on illegal migration.

The next meeting of the European Political Community (EPC) will be held in Oxfordshire on 18 July at Blenheim Palace, where Winston Churchill was born.

The date is a further sign that Sunak is not planning to call an election before July. Hunt also hinted that he would like to freeze fuel duty again and said he hoped to hold another fiscal event before the election. The chancellor has not included the expected annual £5bn cost of freezing fuel duty in his five-year budget.

Under questioning by peers on the House of Lords economic affairs committee, Hunt dismissed criticism that his forecasts were “a fiction’ when they excluded the extra cost of fuel duty freezes.

“I know people call it a fiction. I don’t accept that, actually. It’s a decision that we take at every budget,” he said. “I can be quite open with you and say that I hope that if I do another fiscal event this parliament and, indeed, if I am returned as a chancellor after the next election, I would hope to continue to freeze fuel duty. But I would take that decision on the basis of the public finances at the time. It is not something that is pre-decided.”

Hunt said higher than expected immigration had increased the costs of providing state services, adding to departmental budget constraints, but he said that gave a further impetus to push through initiatives to increase productivity.

The government’s delay in setting a date for the EPC meeting was blamed on uncertainty in No 10 about when to go to the polls. European diplomats had privately expressed frustration that the UK’s domestic political considerations were holding up the summit.

The EPC was created by the French president, Emmanuel Macron, as a forum to discuss pan-European challenges, such as the war in Ukraine. This will be its fourth meeting, after gatherings in the Czech Republic, Moldova and Spain.

Sunak said in a statement: “It is an important forum for cooperation across the whole of Europe on the issues that are affecting us all, threatening our security and prosperity.

“From putting our full support behind Ukraine to stopping the scourge of people-smuggling and illegal migration, under the UK’s leadership the meeting will bring together our European friends, partners, and neighbours to address our shared challenges.”

At the last EPC meeting, hosted by Spain in October, Sunak teamed up with Giorgia Meloni, the Italian prime minister, to force illegal migration on to the agenda.

Labour leading as election looms

After 13 years of Conservative rule, Keir Starmer’s Labour has been consistently ahead in the polls since the start of 2022. The latest a general election could be called is January 2025. The prime minister, Rishi Sunak, has the power to call a general election at any point before then, but facing a potential loss, experts think that he will put it off to stay in power for longer.

In Great Britain-wide polls, the SNP vote sits between 2% and 4% of national vote share. But its geographical concentration in Scotland means it will win many more seats than other small parties with a similar national vote share, such as the Greens. Targeted Scotland-only polls give a much better indication of how well it will do in the next election than the nationwide polls above.

Polls only go so far in predicting who will win in the UK’s first-past-the-post electoral system. What matters is the number of seats each party wins in parliament, which is decided by individual races in 650 constituencies.

Seat predictions differ, but the one we show above is from the pollster Electoral Calculus. It conducts its own polls, in which it also gathers demographic data from the people it surveys.

This data is fed into a mathematical model, called a multilevel regression and post-stratification (MRP) model, with the goal of estimating the connection between characteristics such as age, gender and the area where a person lives, and which party they will vote for.

ALSO READ-Hunt hits landlords with stealth capital gains tax raid

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Hunt seeks to win over voters with £900 tax cut

Chancellor of the Exchequer also announced another 2 percentage-point cut to the national insurance payroll tax, following a similar move in Nov…reports Asian Lite News

Jeremy Hunt cut personal taxes as the Conservative Party tries to win back voters ahead of a nationwide election expected later this year.

Delivering his budget, the Chancellor of the Exchequer announced another 2 percentage-point cut to the national insurance payroll tax, following a similar move in November. Taken together, he said, 27 million employees will get an average tax cut of £900 (€1,052) a year. He also said the UK’s budget watchdog had upgraded the country’s growth prospects for this year and next.

“We know that lower-taxed economies have more energy, more dynamism, and more innovation,” Hunt said in the House of Commons on Wednesday. “We have today put this country back on the path to lower taxes.”

The tax cut is a central part of the Tories’ strategy to close a 20-point gap to the opposition Labour Party in national polls, prior to an election that Prime Minister Rishi Sunak must call by January 25 at the latest. But Hunt was constrained by fragile public finances with the UK entering a recession last year, and the chancellor went into his budget with just £12.2bn (€14.26bn) of breathing space against his key fiscal rule, a margin near historic lows.

Hunt barely kept his budget within the self-imposed rule to have the ratio of borrowing to GDP falling in the final year of his five-year forecast period. He did so by raising taxes by extending a windfall tax on the profits of oil and gas companies and overhauling a tax break for foreigners moving to the UK.

After the change, foreigners arriving in the UK will have a four-year hiatus on tax on their overseas assets, before paying the same rate as Britons. The current non-dom regime lasts for 15 years but with an annual fee.

In a move that appeared designed to get more houses onto the market, Hunt announced a reduction in property capital gains tax and the end of a tax break for people renting out second homes as short-term lets for tourists. Hunt also said the threshold at which families start to lose child benefits will rise by £10,000 in April.

Other budget measures included a freeze on fuel and alcohol duty, a new tax on vaping, and a hike in air passenger duty on business travel.

The Conservatives were given a boost by the rosier growth forecasts from the OBR: Hunt said growth is now due to be 0.8% in 2024, up from the previous estimate of 0.7%. The watchdog is now predicting 1.9% growth for 2025, compared to a previous reading of 1.4%, Hunt said.

Hunt also said he wouldn’t be reducing future public spending plans, an option he’d been considering to help finance his tax cuts. Still, critics have said the 1% increase in spending Hunt is baking in — which involves real terms cuts for unprotected departments — would be politically unsustainable. Hunt didn’t detail his plans, but said boosting public sector productivity would be a key priority.

The budget measures will increase the UK tax burden by 1.1 percentage points, the OBR said.

“The hidden sting in the tail is the continued frozen tax thresholds which will eat into any savings” from the national insurance cut, Christine Cairns, tax partner at PwC, said in an emailed statement.

The chancellor is navigating the constraints of fragile public finances and a stagnant economy that entered a shallow technical recession at the end of 2023.

Inflation has fallen faster than anticipated and market expectations for interest rates are well below where they were prior to Hunt’s Autumn Statement in November, but many British households are still feeling the cost of living squeeze, while public services remain extremely stretched.

Former British finance minister Philip Hammond said it would be a mistake not to have a system in place that encourages so-called “non-doms” to reside in the U.K.

Non-domiciled tax status allows people who are based, but not settled, in the country to only pay U.K. tax on money made in the country. As part of the Spring Budget statement, U.K. Finance Minister Jeremy Hunt said on Wednesday that this would be scrapped and replaced with a new system.

“It would be a massive own goal to remove non-dom taxation and then see a big outflow of investment from the U.K.,” Hammond told CNBC’s Silvia Amaro on Wednesday.

“It would be a mistake to have no regime in place that encouraged people in those circumstances to base themselves in the U.K.,” he said. “If we said for example to people that they have to pay tax on their worldwide assets if they come and spend time in the U.K. I think that would probably be detrimental to the U.K. economy in the long term.”

Hammond said the integrity of the policy would now depend on the details of Hunt’s new plan.

Hammond was broadly positive about the statement, saying it was “a careful and thoughtful budget from a careful and thoughtful Chancellor.”

He also said that he would like to see lower taxes eventually, but that public services needed to be taken into account. “In the future we need higher productivity, higher economic growth, so we can reconcile this tension between the desire for good public services and the desire to keep taxes at a bearable level.”

ALSO READ-Will Hunt Spring A Surprise?

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Hunt may extend energy windfall tax by a year

Hunt raised the tax in November 2022 from its initial 25% rate to 35%, bringing the overall tax burden on North Sea oil and gas producers to 75%, among the highest in the world…reports Asian Lite News

Finance minister Jeremy Hunt is expected to announce a one-year extension of a windfall levy on energy firms’ profits in this week’s budget, industry sources briefed on the move said.

The energy profit levy (EPL) was introduced in May 2022 after a jump in energy prices resulting from Russia’s invasion of Ukraine.

Hunt raised the tax in November 2022 from its initial 25% rate to 35%, bringing the overall tax burden on North Sea oil and gas producers to 75%, among the highest in the world.

The British chancellor also extended the tax to 2028 from 2025 and expanded it to electricity generators with a levy of 45% in an effort to raise tens of billions of pounds to plug a major hole in public finances.

In his annual tax-and-spend speech on Wednesday, Hunt is expected to extend the levy by one more year to 2029. The tax rate, as well as a 29% investment allowance in the windfall tax that allows companies to offset spending, would remain unchanged, the sources said.

Britain’s finance ministry did not immediately respond to a request for comment. North Sea producers have warned in the past that the higher levy would lead to lower investment in the country’s oil and gas output.

Over the weekend, Hunt sought to dampen speculation about big pre-election tax cuts in this week’s budget, saying there had been a worsening in the economic outlook, but he hinted at some help for voters.

Meanwhile, industry leaders have hit out at reported plans from Chancellor Jeremy Hunt to extend the life of the windfall tax during next week’s Spring Budget.

According to a report from Bloomberg, the Chancellor is considering extending the levy, due to expire in March 2028.

The same report said the move is “low down the list of potential measures under consideration” – so it may not happen – and the Treasury didn’t respond to a request for comment.

Maintaining the energy levy for an extra year would increase the tax take in 2028-2029, the crucial fifth year of the OBR’s forecast horizon during which Hunt’s own fiscal rules state that the national debt must be falling. That would give him a bit of extra breathing space to ease other taxes.

ALSO READ-Economy is on the right track, claims Sunak

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Economy is on the right track, claims Sunak

With Chancellor Jeremy Hunt to deliver his pre-election Budget on Wednesday, Mr Sunak said: “I think that’s a huge vote of confidence in the UK, and it shows that the work we’re doing to get the economy on the right track is paying off…reports Asian Lite News

Rishi Sunak claimed the UK economy is getting “on the right track” as he visited the site of the former Honda car factory.

The Japanese car giant’s plant in Swindon, Wiltshire, shut in 2021 with the loss of thousands of jobs and the site was sold to developer Panattoni to turn into a logistics hub.

Addressing Panattoni staff working on the demolition and reconstruction of the site, the Prime Minister said in the last five years the firm has begun developing more than 25 million square feet of industrial space.

With Chancellor Jeremy Hunt to deliver his pre-election Budget on Wednesday, Mr Sunak said: “I think that’s a huge vote of confidence in the UK, and it shows that the work we’re doing to get the economy on the right track is paying off.

“Now, I’m determined, as Prime Minister, to make sure that the UK is the best place in the world to invest and grow a business like this.

“And that’s why we’ve been taking ambitious steps, like making full-expensing permanent, which is the biggest business tax cut in modern British history.

“It’s all about supporting businesses like this to invest in local areas and create jobs and opportunity for the future.”

On Monday, Hunt reiterated his desire to move towards a “lower tax economy” but in a “responsible” way, ruling out borrowing to pay for a pre-election giveaway. He dodged questions on whether the Tory Government is “pinching Labour’s policies” as it is thought he is considering abolishing the non-dom tax status as a way of raising revenue – a long-standing pledge made by Sir Keir Starmer’s party.

“You’ll have to see on Wednesday precisely what I’m going to announce,” the Chancellor told broacasters. “But let me be clear, there is a plan for growth compared to the Labour Party that has just had to abandon the central plan that they had for growth – this 28 billion number that one day they were supporting, the next day they were not.”

The closure of the Honda plant was announced in 2019 in the wake of Brexit – although the firm insisted that was not the reason, instead blaming unprecedented changes in the global car industry.

ALSO READ-China to Start Legislative Meetings Amid Concerns Over Economy, Security

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Hunt dampens hopes of tax cuts  

The Chancellor of the Exchequer had been widely expected to cut taxes in Wednesday’s budget, in a move seen as a way of closing the gap on the main Opposition Labour Party ahead of elections…reports Asian Lite News

Finance Minister Jeremy Hunt talked down the likelihood of tax cuts in this week’s budget, pledging “prudent and responsible” measures “for long term growth”.

The Chancellor of the Exchequer had been widely expected to cut taxes in Wednesday’s budget, in a move seen as a way of closing the gap on the main Opposition Labour Party ahead of elections.

Rishi Sunak’s Conservative Party is trailing in the polls with pollsters predicting that Labour leader Keir Starmer in on track to win the keys to number 10 Downing Street at a general election later this year.

Voters, hit by a cost of living crisis, have repeatedly punished the Conservatives in a string of recent by-elections.

With the Bank of England’s main interest rate sitting at a 16-year high of 5.25%, millions of voters are also suffering from soaring mortgage repayments.

“It’s going to be a prudent and responsible budget for long term growth,” Hunt told Sky News television channel. Official data last month showed Britain had sunk into recession after the economy shrank in the final two quarters of 2023.

While economists predicted that the recession could be short-lived, the data has been a big setback for Sunak, who has placed economic growth as a key priority.

But Hunt said he would not cut taxes at the expense of future generations. “I think the most unconservative thing I could do would be to cut taxes by increasing borrowing,” he told the BBC.

“Because that’s just cutting taxes and saying that future generations have to pick the tax up,” he added.

Although he would not be drawn on tax measures expected in the budget, Hunt did announce an £800 million ($1.01 billion) package of technology reforms designed to make public services more efficient and reduce paperwork.

As part of the package, police will use drones to assess incidents such as traffic collisions and artificial intelligence (AI) will be deployed to speed up the results of cancer scans in the state-run National Health Service.

“There is too much waste in the system and we want public servants to get back to doing what matters most: teaching our children, keeping us safe and treating us when we’re sick,” Mr. Hunt said in a statement.

According to The Sunday Times, the Office for Budget Responsibility told Hunt on Wednesday that he has £12.8 billion of headroom to play with — more than £2 billion less than the figure the Treasury is said to have previously been basing its calculations on.

After a shallow recession in 2023, the economy looks set to grow only slowly in 2024 while demands are mounting for spending on stretched public services and investment. Debt has soared to almost 100% of economic output after the COVID pandemic and the surge in energy prices hammered the public finances. 

Nonetheless, Hunt and Prime Minister Rishi Sunak are under pressure to cut taxes to help the party’s flagging fortunes before a national election expected later this year. 

Many Conservative lawmakers say the budget represents the last chance of turning around the centre-left opposition Labour Party’s 20-point lead in opinion polls. 

Speaking to Sky News on Sunday, Hunt said he would like to cut taxes further possibly as soon as Wednesday. 

“What you saw in the Autumn Statement was a turning point, when we cut two pence off the National Insurance rate. We will hope to make some progress on that journey, but we’re going to do so in a responsible way,” Hunt told the broadcaster.

British bond markets went into a slump 18 months ago when former Prime Minister Liz Truss and finance minister Kwasi Kwarteng promised sweeping and unfunded tax cut plans which had to be quickly reversed by Hunt. 

In November, he announced some cuts to business and payroll taxes but the overall tax burden is still rising, largely because thresholds for paying many taxes have not risen in line with inflation. 

Media reports have speculated about possible cuts to income tax rates, another social security cut or the relaxation of the threshold freezes. 

Budget experts have said Hunt might again claim that he can afford to cut taxes now by making unrealistic promises of a squeeze on public services that are already under huge strain. 

Reports have also cited a possible tightening of tax rules for so-called “non-dom” residents on their overseas earnings. 

Hunt focused on another way that he could carve out a bit more fiscal wiggle room, telling BBC television on Sunday he would “rethink our whole approach to public spending.” The finance ministry said on Saturday it planned to improve public sector productivity which would deliver up to 1.8 billion pounds ($2.3 billion) of worth of benefits annually by 2029. 

ALSO READ-Hunt to allow private firms to trade shares on exchanges

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Hunt to allow private firms to trade shares on exchanges

The idea for Pisces was announced in 2022 as part of Hunt’s reforms to make the City of London more attractive to investors as it battles New York for listings…reports Asian Lite News

Finance minister Jeremy Hunt is drawing up plans to allow UK private companies to offer shares on exchanges, the Financial Times reported on Saturday.

The Private Intermittent Securities and Capital Exchange System (Pisces) would act as a crossover between public and private markets allowing for some liquidity in the shares of private companies without the regulatory burden of a public listing, the FT said.

Investors would be able to sell stakes on a limited number of days under proposal to be included in next week’s budget

“This is a ground-breaking proposal for a new market that will help private companies to scale up and will boost the pipeline of future IPOs in the UK,” a Treasury source told Reuters.

The system would require approval by the Financial Conduct Authority and could start later this year, the FT said.

The idea for Pisces was announced in 2022 as part of Hunt’s reforms to make the City of London more attractive to investors as it battles New York for listings.

Companies would not be allowed to raise new capital through Pisces and retail investors were not expected to be permitted to buy shares using the system, the FT said, citing an unidentified official.

Separately, Hunt on Saturday unveiled the next leg of the compact aimed at partly reversing the decades-old trend of pension funds opting for safe government bonds that typically have lower returns than more risky start-ups.

Pension schemes in Britain will have to disclose by 2027 how much they invest in UK assets, the finance ministry said.

ALSO READ-IMF warns Hunt against tax cuts

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IMF warns Hunt against tax cuts

The IMF said it was forecasting UK growth of 0.5% in 2023 and 0.6% in 2024 – both unchanged from October – and with only Germany of the leading G7 industrialised economies expanding more weakly…reports Asian Lite News

The International Monetary Fund has issued a strong warning to Jeremy Hunt against cutting taxes in his budget in March, stressing the need to boost key areas of public spending instead.

In updated forecasts for the UK and the rest of the global economy, the Washington-based fund doubted whether the widely anticipated tax cuts would be possible without extra borrowing or post-election spending cuts.

The IMF said the chancellor should be focusing on repairing the public finances after the damage caused by the pandemic and the war in Ukraine in order to meet growing spending pressures.

An IMF spokesperson said: “Preserving high-quality public services and undertaking critical public investments to boost growth and achieve the net zero targets, will imply higher spending needs over the medium term than are currently reflected in the government’s budget plans.

“Accommodating these needs, while assuredly stabilising the debt/GDP ratio, will already require generating additional high-quality fiscal savings, including on the tax side.”

Hunt is expected to cut income tax in the budget, but the IMF called on the chancellor to increase carbon and property taxes, take steps to eliminate loopholes in the taxation of wealth and income, and overhaul the pensions triple lock. “It is in this context that [IMF] staff advises against further tax cuts,” the IMF said.

Hunt rejected the IMF’s call. “The IMF expect growth to strengthen over the next few years, supported by our introduction of the biggest capital investment tax reliefs anywhere in the world, alongside national insurance cuts to improve work incentives,” the chancellor said.

“It is too early to know whether further reductions in tax will be affordable in the budget, but we continue to believe that smart tax reductions can make a big difference in boosting growth.”

The IMF said it was forecasting UK growth of 0.5% in 2023 and 0.6% in 2024 – both unchanged from October – and with only Germany of the leading G7 industrialised economies expanding more weakly.

With lower inflation likely to boost consumer spending power, the IMF said it was pencilling in UK growth of 1.6% in 2025 – slower than forecast three months ago. “The markdown to growth in 2025 of 0.4 percentage points reflects reduced scope for growth to catch up in light of recent upward statistical revisions to the level of output through the pandemic period,” the IMF said.

Last year, the Office for National Statistics revised up its estimates of UK growth in 2020 and 2021 by 1.8 points in total across the two years.

The IMF said the global economy was gliding towards a “soft landing” after coping with the impact of tough central bank interest-rate action to reduce inflation.

Revising up its growth estimates for 2024, the IMF said a number of big economies – including the US, China, Russia and India – had posted stronger than expected performances in 2023 and it was surprised by the resilience shown.

ALSO READ-IMF upgrades 2024 global growth forecast to 3.1%

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Hunt Signals Further Tax Cuts

Chancellor Jeremy Hunt aims to attract more investment to Britain during his Davos visit, emphasising the significance of lower taxes for economic growth…reports Asian Lite News

UK Chancellor Jeremy Hunt has hinted at an inclination to reduce taxes in the upcoming spring budget. Speaking to the BBC at the World Economic Forum in Davos, Switzerland, Hunt emphasised the positive correlation between lower taxes and dynamic, faster-growing economies. In the previous autumn statement, he had already reduced national insurance for workers by 2% and announced tax relief for businesses.

The chancellor expressed the possibility of further tax cuts if inflation decreases this year, coupled with lower interest rates, providing fiscal headroom. Hunt aims to attract more investment to Britain during his Davos visit, emphasising the significance of lower taxes for economic growth.

Observing the direction of economic growth in North America and Asia, Hunt believes that low-tax economies are more competitive and generate increased revenue for public services like the NHS. While not providing specific details on the scale of potential tax cuts, he awaits an assessment from the Office for Budget Responsibility (OBR).

The focus of the budget on March 6 is expected to be on income tax, as the overall tax burden is set to rise to its highest level in decades. Frozen tax thresholds since 2021, remaining unchanged until 2028, contribute to households being pushed into higher income tax brackets. Typically, tax thresholds rise with inflation, but the current freeze has sparked anticipation for adjustments in the upcoming budget.

Inflation Rose in December

The UK’s consumer price index (CPI) rose by 4 per cent in the 12 months to December 2023, up from 3.9 per cent in November, according to official data. This was the first inflation increase since February 2023, said the Office for National Statistics (ONS).

Meanwhile, Chancellor Hunt said he was “confident” that inflation will continue to fall and that prices were “heading in the right direction”. He told reporters on Thursday: “I think it’s coming down. I think it will continue to fall.”

The ONS said that CPI rose by 0.4 per cent monthly in December, reports Xinhua news agency. “The rate of inflation ticked up a little in December, with rises in tobacco prices due to recently introduced duty increases,” said Grant Fitzner, chief economist of the ONS. Prices in the alcohol and tobacco division rose by 12.8 pe cent in the year to December.

As announced in Autumn Statement 2023 in November, duty rates on tobacco products increased by retail price index (RPI) inflation plus 2 per cent, with duties on hand-rolling tobacco products increasing by RPI inflation plus 12 per cent.

The tobacco price rises “were offset partially by falling food inflation, where prices still rose but at a much lower rate than this time last year”, said Fitzner. “Meanwhile, the prices of goods leaving factories are little changed over the last few months, while the costs of raw materials remain lower than a year ago,” he added.

According to the ONS, food and non-alcoholic beverage prices rose by 8 per cent in December year-on-year, the lowest growth rate since April 2022. The latest data, significantly down from a peak of 11.1 per cent in October 2022, is still double the central bank’s 2 per cent target.

Economists are expecting the Bank of England to cut interest rate, which currently stands at a 15-year high of 5.25 per cent, at around the middle of this year.

However, the UK teeters on the edge of recession, evident in recent official growth figures revealing a contraction in the economy from July to September. A recession, commonly defined by two consecutive quarters of declining GDP, looms on the horizon.

Despite the economic challenges, Chancellor Hunt remains cautiously optimistic. While asserting that it’s premature to determine the scope of potential tax cuts, he pointed to the swift decline in inflation as a positive indicator for Britain’s improving economic outlook.

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