Yet this is his last chance to win over voters with a tax cut or two before the election, so he’ll want to do something. The nation’s hard-pressed taxpayers shouldn’t get their hopes up as the Office for Budget Responsibility has been shrinking his “fiscal headroom”. That’s the amount he can afford to give us in tax cuts.
Early estimates suggested Hunt had £20billion to play with. That has gradually shrunk to £15billion, £13billion and now around £10billion.
Hunt would have loved to cut 2p off income tax, ended the freeze on personal allowances, and scrapped inheritance tax (IHT) altogether.
Now he may only have one option left.
Hunt could potentially cut the basic rate of income tax by 2p in the £1, reducing it from 20 percent to just 18 percent, said Sarah Coles, head of personal finance at Hargreaves Lansdown. “This now looks unlikely but he could opt for a smaller 1p cut.”
Cutting income tax by 1p would save 36million taxpayers around £200 a year.
My view: This would win headlines but cost the Treasury almost £7billion next year. Hunt may think that’s too high a price to pay.
If Hunt does cut income tax, it will only partially offset the damage done by his six-year freeze on income tax and NI thresholds.
The personal allowance and 40 percent higher rate threshold are stuck at 2021 levels of £12,570 and £50,270 respectively, and are set to remain there until 2028.
Nearly four million will start paying income tax as a result with another three million moving to the higher 40 percent rate.
Ali Sapsford, head of tax at accountancy group RSM, suggested Hunt could ease the pressure by lifting the freeze. “If the personal allowance and higher tax band had risen with inflation, they would now exceed £15,000 and £60,000.”
My view: The tax threshold freeze is a cash cow for the Treasury. It’s simply too lucrative to axe.
Some still hope Hunt will do away with inheritance tax (IHT), regularly voted the UK’s most unpopular levy.
However, Sapsford said only a tiny number would benefit before the election. “HMRC statistics show less than four percent of UK estates a year pay IHT.”
My view: Forget it. This would be a gift to Labour who would frame it as a tax cut for the rich.
READ MORE: Jeremy Hunt urged to reform ‘unfair stealth tax’ that hits struggling families
An IHT cut could play well among older voters but Hunt could give them a boost by increasing the personal savings allowance (PSA) instead, said Becky O’Connor, director of public affairs at PensionBee.
Under the PSA, basic rate taxpayers can receive £1,000 interest a year without paying tax, while higher-rate taxpayers can earn £500.
Rising savings rates have pushed more over these thresholds and O’Connor said. “Older savers tend to have larger balances, so a generous increase to the PSA will please them.”
My view: It could happen, but won’t really excite voters. Hunt wants a headline grabber and this isn’t it.
Another levy crying out for reform is the high income child benefit charge, imposed in 2013 when one partner in a couple earns more than £50,000 a year.
For every £100 of earnings over the threshold, they lose one percent of their child benefit. It disappears altogether once they earn £60,000.
One in eight families pay an effective tax rate of 60 percent due to the charge.
Christie Cook, managing director of retail at Hodge, said: “Raising the threshold would be welcome news for thousands of households.”
My view: Hunt may tinker with this punitive tax, but he won’t do the decent thing and axe it altogether.
Hunt’s final option is to double down on his Autumn Statement decision to cut National Insurance (NI).
Each penny will save 27 million workers more than £200 each. It will cost the Treasury around £4.5billion, less than an equivalent income tax cut.
My view: This would fulfil one of Hunt’s key economic goals, which is to make work pay. That makes it his most likely move.
The drawback of another NI cut is that it will do nothing to little to help 12million pensioners, as they do not pay NI. This is a key voter demographic for the Tories, and they won’t be happy.
We won’t know for sure what Hunt will do until March 6. Like everything else right now, the Budget is hanging in the balance as the country is short of cash.
