Hunt will propose ‘stealth’ income tax hike in bid to plug £40billion tax hole
Chancellor Jeremy Hunt is due to offer a ‘stealth’ increase in income tax for millions after the next election to help plug a £40billion tax hole, but his cut budget statement the debt scheduled for October 31 could be delayed.
Hunt is expected to extend the current freeze on income tax thresholds and allowances until the next parliament, according to two government sources briefed on his plan, raising around £5billion a year by 2027-28.
He will use his medium-term budget plan, due out on Halloween, to prove to the markets and the Office for Budget Responsibility, the independent budget watchdog, that he has a strategy to get the debt under control.
But Downing Street said on Friday the timetable for the plan could slip following the resignation of Liz Truss as Prime Minister and the Tory leadership race that is currently underway.
“We are working on the preparation for the 31st, but it is obvious that the decision to proceed with this and with this timetable would be up to the new Prime Minister,” said a Number 10 spokesperson.
Hunt hopes to remain in office regardless of who wins the Tory leadership race and his financial plan is nearly complete; he previously backed former Chancellor Rishi Sunak in the contest to succeed Boris Johnson.
Sunak, who will campaign for prime minister on a fiscal responsibility platform, is likely to broadly endorse Hunt’s plan and will pledge to restore economic credibility.
Johnson, who has favored higher government spending in the past, might find that more uncomfortable. Sunak left Johnson’s cabinet in July, saying the former prime minister could not make tough budget decisions.
Government officials say it is likely the October 31 date could slip if the current leadership race includes a run-off of party members, leading to the announcement of a result on October 28.
Truss’s successor will want to endorse any economic package, but if a new leader emerges after a round of MPs on Monday, the fiscal event could go ahead as planned.
Hunt is keen to deliver his budget statement ahead of the next meeting of the Bank of England’s monetary policy committee on Nov. 3, which will make a key decision on the scale of the interest rate hike.
A large “stealth” tax hike could be achieved by extending the four-year freeze on personal tax allowances and thresholds announced by Sunak in 2021.
With high inflation, the “tax drag” effect means that millions of people are pushed into the tax system for the first time or into higher tax brackets each year.
Those briefed on his plans say Hunt is expected to delay investment projects and cut government spending after the next election, which is due to be held by January 2025. He is also targeting ‘windfall’ corporate profits. energy and banks.
The declaration will also slash planned spending on overseas aid by £5bn a year by freezing spending at 0.5% of gross domestic product – below the 0.7% promised in the latest Tory manifesto .
Hunt’s plan will delay much of the financial pain until after the election and minimize the risk of a rebellion by Tory MPs.
Hunt said “nothing is on the table”. The Treasury said on Friday: “We do not comment on speculation about tax changes outside of tax events.”