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Jeremy Hunt and Rishi Sunak will spend the weekend scrambling to finalize Wednesday’s Budget after being warned there was a £2bn black hole in their original plans.
The Chancellor and Chancellor were dealt a blow on Wednesday night when the budget watchdog announced their draft plan was £2bn higher than the government’s ‘headroom’, or the amount of surplus funds allowed for its promise to reduce debt over five years. received.
Since then, they have been working to restructure the budget amid intense pressure for tax cuts that would boost economic growth and help the Conservatives close their poll gap with Labor in an election year.
They were hoping for better news when the Office for Budget Responsibility (OBR) released another major outlook late Friday night, and planned to spend the weekend putting together a near-final package by Wednesday.
Treasury officials have admitted the process of putting together a budget has been “difficult” given weeks of bleak forecasts from the OBR, leaving Mr Hunt with little leeway before making decisions. It was £13 billion (of which the Prime Minister wants £6 billion). Holding reserves to reassure the market.
This is expected to result in either Mr Hunt cutting either income tax or national insurance by 1p, a smaller tax cut than the one he proposed in his Autumn Statement, a 2p cut or an unfreezing of some tax bases. It means that it is fading.
The Chancellor is still considering following Labour’s policy of scrapping the controversial ‘non-dom’ tax status as it considers various measures to raise funds to increase the budget. There is.
Mr Sunak on Friday hinted that National Insurance contributions could be cut from 12% to 10% in January after the autumn statement.
Asked if there was any chance of further tax cuts announced on Wednesday, the Chancellor said: “The Prime Minister and the UK Government chose to cut National Insurance. There were many reasons for that, but first and foremost it is a tax on work.
“I believe in a country and a society where hard work is rewarded. That’s really important to me and to everyone in government. Cutting National Insurance is about rewarding hard work.”
The Institute for Free Market Economics (IEA), an influential think tank among right-wing Tory MPs, said the “stagnation” in the UK economy was a “disaster” for living standards and should be a “priority” in the Budget. .
IEA Director-General Tom Clougherty called for stamp duty to be scrapped, but Hunt denied this.
“If there is fiscal room for tax cuts, we should prioritize reforms that have the potential to have meaningful growth effects,” Clougherty said.
“The Chancellor of the Exchequer will be able to make beneficial changes to the Treasury Corporation Tax and Business Rates at limited cost.
“But the real benefit will be the abolition of stamp duty. There will be a fiscal hit from the abolition of stamp duty land tax, but the distortions it will cause in a tight housing market will be so devastating that it will be The cost is clearly worth bearing.”
Mr Clougherty also warned that abolishing the non-dom status risked having “little room for fiscal turnaround and unintended negative consequences”.
“I hope this speculation does not indicate a last-minute struggle to adhere to fiscal rules,” he added.
“Tax policy should be developed for the long term and not made on the fly in response to fluctuating (and changing) five-year debt projections.”