Battle lines

Hunt’s tax cut hint threatens to widen Scots gulf

Chancellor Jeremy Hunt in Davos

Chancellor Jeremy Hunt has dropped strong hints that he will cut taxes in the spring budget, putting markets on alert for looser monetary policy and widening the division with the Scottish government.

Mr Hunt said countries with lower taxes have more “dynamic, faster growing economies” and he left analysts believing tax will now be a centrepiece of the forthcoming general election.

In the autumn statement, he cut employees’ national insurance by 2% and announced tax relief for businesses, but warned that income tax cuts would only be possible once inflation was firmly under control and the economy was expanding.

Price growth has been slowing, though inflation unexpectedly rose in December to 4% from 3.9% in November. The UK is also stuck in a low growth cycle which means it is flirting with recession.

Mr Hunt, speaking during his visit to the World Economic Forum, in Davos, Switzerland, said the “direction of travel” indicates that economies growing faster than the UK, in North America and Asia tend to have lower taxes.

He added: “I believe fundamentally that low-tax economies are more dynamic, more competitive and generate more money for public services like the NHS.”

Markets will now price in tax cuts in the budget on 6 March, with some analysts still expecting a general election to be delayed until the end of the year to allow for further cuts in an autumn statement.

Much will depend on geo-political events. Instability in the Middle East is adding to global economic uncertainty.

Mr Hunt is being urged by his own backbenchers to tackle the overall tax burden which is rising to the highest level for decades because of the freeze on tax thresholds. This has dragged earners into higher tax brackets as wages rise. Thresholds in England and Wales have been unchanged since 2021 and will remain frozen until 2028.

The Scottish government has raised income tax and any cuts announced in March will put pressure on the SNP-Green administration’s budget which is due to be ratified before Mr Hunt delivers his statement.

Figures from the Scottish Government’s budget forecaster show that the number of workers being dragged into higher income tax bands has doubled since the SNP was handed new powers.

Additionally, one in four workers – 866,000 – will be in the higher, advanced or top bands within four years, according to the Scottish Fiscal Commission (SFC).

That compares with 317,000 in 2017, when tax divergence from England began, and the 647,000 expected to be in those higher brackets during 2025.

Shona Robison, the Deputy First Minister and Finance Secretary, is also introducing a 45% advanced rate between £75,001 and £125,140 and is increasing the top rate from 47% to 48%.

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