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Prime Minister Jeremy Hunt is clinging to hopes of delivering a 2p personal tax cut in next week’s budget without cutting spending.
A Treasury source said a repeat of the 2p level tax cut from National Insurance in the Autumn Statement would mean the amount of surplus cash the Prime Minister would have to spend, according to the budget watchdog’s forecasts, would be at present. I can’t bear the burden.”
But the Office for Budget Responsibility (OBR) is expected to publish its final outlook on Friday, which will begin a “last ditch effort” to compile a budget over the weekend.
The final calculations will be based on a budget proposal submitted by Mr Hunt and a wide range of economic data.
He has so far submitted only a “modest” tax cut proposal to the OBR as he has been given little or no additional funding to spend compared to his autumn statement.
The so-called headroom of around £13bn (the amount Mr Hunt would have to spend on his promise to reduce the debt within five years) would mean £13bn in 2p cuts to either income tax or national insurance. . The source said the £9bn would be “unaffordable” next week.
However, a final decision on what measures are possible in the March 6 budget will be “pending the final outlook.”
The chancellor is also under pressure to keep open the option of cutting spending to finance tax cuts.
Depending on the final projections, cutting overall spending growth plans from 1% to 0.75% in real terms to save around £5bn “remains an option,” without specifying where that would fall. That’s what it means.
“If we need to turn it on, we will turn it on, but we have to wait for the final OBR forecast on Friday,” the official said.
The decision comes after the Institute for Fiscal Studies (IFS) said the government should resist tax cuts in the Budget unless the chancellor can show how they will be paid for.
The independent think tank estimates that the current post-election spending plans will result in around 20% of real annual spending by 2028/29 in unprotected areas such as the NHS, schools, defense and health services, including local authorities, courts and prisons. It said it was suggesting cuts of £20bn. Aid and childcare.
The IFS said it would “lack credibility and transparency” if it did not show exactly what spending cuts would be used to “pay for” the tax cuts.
Council member Paul Johnson told reporters the Prime Minister’s plans meant “total uncertainty”.
“There is a huge backlog in the justice system, local authorities on the left, right and center are bankrupt, the health service has huge waiting lists and is starting to struggle more and more seriously with a 10-year revenue freeze. Universities, a struggling social security department…a packed prison system, etc.
“So unless someone says, ‘We’re offering a not-so-good version of this service, or we’re offering a really good version,’ there’s clearly a big space for these cuts.” I’m not going to tackle this in a world like this.Radical plans to change how we deliver [the service]”
He added: “It’s not a real conversation in that sense.”
Mr Johnson added that Mr Hunt was “to some extent…engineering his own fiscal rules” when it came to debt reduction.
IFS added that if the Chancellor is determined to cut taxes, cutting stamp duty on property and share purchases would be better for growth than cutting income tax or national insurance.