Bond markets have wobbled ahead of Jeremy Hunt‘s Autumn Statement as investors wait to see how big the Chancellor’s tax cuts will be.
The yield on the benchmark 10-year gilt climbed as high as 4.14 percent in early trading compared with 4.09 percent at the start of Wednesday (November 22). The yield is the return the Government promises to pay the buyers of its debt.
It had fallen from 4.67 percent in the middle of October as markets bet on interest rates dropping amid news of an improving economy. Inflation fell to 4.6 percent in the same month.
Investors may be feeling jittery ahead of Mr Hunt’s expected tax cuts, given their experience a year ago when former Prime Minister Liz Truss’s mini-Budget of unfunded tax cuts triggered a sell off in the bond market and pensions crisis.
The Chancellor is expected to take advantage of headroom in the public finances, allowing him to reduce taxes while still meeting his “fiscal rules” of having debt falling in the fifth year of the economic forecast and for borrowing to be less than three percent of gross domestic product (GDP).
This is partly due to increased tax receipts as a result of higher wages and the freeze in income tax thresholds.
As a result of this “fiscal drag”, millions more workers are crossing the earnings threshold to pay tax for the first time or shifting into higher bands.
Mr Hunt is expected to tell MPs: “The Conservatives will reject big government, high spending and high tax because we know that leads to less growth, not more.”
With an eye on the next General Election, Mr Hunt is expected to offer a national insurance cut for 28 million workers and make permanent the “full expensing” regime which allows firms to reduce their tax bills when they invest.
A one percentage point cut in national insurance contributions would cost the Treasury about £5billion and be worth about £380 a year to an individual earning more than £50,000, according to The Times.
In a video message ahead of his appearance in Parliament, Mr Hunt said he wanted to encourage entrepreneurs.
The Chancellor, who founded an education company, said: “I’m thinking of my own business, that I set up over 30 years ago.
“I want to help thousands of other people do what I did, and I hope today will make a really big difference.”
With the Bank of England forecasting a stagnant economy next year, Mr Hunt will insist his plan can deliver growth and reduce the national debt.
He will tell MPs: “After a global pandemic and energy crisis, we have taken difficult decisions to put our economy back on track.
“We have supported families with rising bills, cut borrowing and halved inflation. The economy has grown. Real incomes have risen.
“Our plan for the British economy is working.
“But the work is not done. Conservatives know that a dynamic economy depends less on the decisions and diktats of ministers than on the energy and enterprise of the British people.”
