Hunt and Prime Minister Rishi Sunak have driven the nation’s tax burden to a 70-year high, adding to cost-of-living pressures. Now they have an opportunity to give something back. A good old-fashioned tax cut (or two) might even help the Conservative Party make up some lost ground on Keir Starmer’s resurgent Labour Party.
Tory backbenchers want to see tax cuts. So do voters. But will Hunt grant them?
We asked Nimesh Shah, chief executive at tax and advisory firm Blick Rothenberg, to review Hunt’s options. He said the Chancellor has more room for manoeuvre than he would like to admit as the tax threshold freeze fills Treasury coffers. “Annual receipts now exceed £800billion, having increased by £135billion in just two years.”
If Hunt and Sunak do go for it, Shah sets out five ways they could cut our taxes.
1. Race to the rescue of middle earners. More than five million Britons now pay higher rate tax at 40 percent, which kicks in once earnings top £50,270.
Hunt could win their favour by lifting the higher rate tax threshold all the way to £60,000, Shah said. “This sounds like a significant increase, but the threshold was £43,875 in 2010. If it had increased with inflation since then, its current level would be closer to £65,000.”
Express verdict: While this would be supremely popular among middle income Britons, those lower down the income scale won’t feel the benefit. It could lose as many votes as it wins.
2. Hike the personal allowance and help every taxpayer. The personal allowance has been frozen at £12,570 until 2028 so as incomes rise, we hand more of our money to HMRC.
Shah said Hunt could hike the personal allowance to £15,000, which would lift millions of lower earners and pensioners out of the income tax system altogether.
Express verdict: This would put money into the pockets of every single taxpayer and lift spirits across the board. Although in practice, Hunt is merely giving back some of the money he has seized by freezing income tax thresholds.
3. Keep things simple by cutting the basic rate of income tax. In last summer’s Conservative leadership race, Rishi Sunak pledged to reduce the basic rate of income tax to 16 percent by the end of the next Parliament, if he became PM. Now he has an opportunity to get started.
The tax threshold freeze has effectively increased the basic rate of income tax by six percent to 26 percent, so again this would only be a partial reversal, Shah said. “Overall, this would not meaningfully reverse the tax pressure on households and families.”
Express verdict: Slashing the basic rate of income tax all the way to 16 per cent would be a bold statement, but it would also clash with Hunt’s other goal of bringing inflation back under control.
A more likely option is that Hunt cuts a penny off basic rate income tax, reducing it to 19 percent. That will be feeding us scraps, though, as we’ll still be paying a lot more overall thanks to that freeze.
READ MORE: Chancellor told: ‘Tax cuts could bring down prices and boost growth…’
4. Treat us to another stamp duty holiday. Total tax receipts may be at record highs but one lucrative source of revenue, the stamp duty land tax on property purchases, has actually fallen by a quarter.
That’s down to the slowdown in housing transactions, due to higher interest rates, but Shah said: “The Chancellor could be tempted to cut stamp duty to inject a bit of excitement back into the property market.”
Express verdict: We saw during the pandemic the impact a stamp duty cut has on buyers, as it can shave thousands of pounds off the total purchase price.
This could inject some life back into the market. While only a small number of voters would benefit directly, every homeowner will feel a little better off if prices rise as a result.
5. Slash inheritance tax. Pledging to slash inheritance tax before an election has worked for the Tories before, and Hunt will be sorely tempted to repeat the trick.
Shah said it could be a crowd-pleasing move as reforming or even abolishing IHT would “grab headlines and appease traditional Conservative voters”.
The downside is that IHT will soon bring in £8billion a year and those revenues must be replaced. “Even if Hunt doesn’t abolish IHT, he could at least increase some of the allowances. They have not changed in decades and this would be an easy first step.”
Express verdict: Inheritance tax is regularly voted the most unpopular levy of all, even though only four percent of estates pay it today.
Scrapping it altogether could backfire as the Labour Party would label this a tax break for the rich. Yet many on lower incomes dislike the principal of IHT even if they will never pay it.
Shah said Hunt must keep his cool. “The UK tax system is extremely complicated and poorly thought through legislation will do more harm than good. He must not complicate the tax system further but look for easy, straightforward wins.”
As his analysis shows, Hunt has options to do just that. So will he take them? We will find out on November 22.
