Hunt confirms 2p cut in national insurance, claiming average personal taxes now at lowest level since 1975
Hunt is now talking about national insurance.
From April employee national insurance will be cut from 10% to 8%, and self-employed NICS from 8% to 6%.
He says, combined with the changes announced in the autumn statement, 27 million people will gain £900. And 2 million self-employed people will gain £650.
He says the OBR says this will put 200,000 more people in work. And it will increase GDP by 0.4%, he says.
He says this will bring personal taxes to their lowest level since 1975.
And he says the Conservatives will continue to keep cutting national insurance.
(There is a big difference between personal taxes and the overall tax burden. In 1975 VAT had only just been introduced, and it was levied at 10%. It is double that rate now.)
Key events
Economists are warning that Jeremy Hunt is sailing very close to breaking his fiscal rule, to have debt falling as a share of the economy in five years.
Barret Kupelian, chief economist at PwC, says the chancellor is within a “rounding error” of missing the rule.
As his starting headroom was limited, he did what most Chancellors are famous for – take with one hand and give with the other – to further fund his tax cuts. The most notable revenue raising measures he announced were around taxing on non-domiciled individuals, tobacco and vaping products, extending the energy profits levy and adjusting the Air Passenger Duty.
“On balance though, this means that the Chancellor’s headroom at the end of the fiscal period is very limited and thus is dangerously close to breaking his own rules. The OBR expects around £9 billion of headroom to remain – if fuel duty remains frozen, this would get it down to £4.5 billion, which is virtually a rounding error.
The OBR point out that Hunt’s margin is much narrower than previous chancellors have judged wise:
The £8.9 billion margin in our central forecast against the debt falling target is lower than the average of £26.1 billion that Chancellors have set aside against their fiscal rules since 2010, and is a small fraction of the risks around any fiscal forecast.#Budget2024 pic.twitter.com/OEHaW4nZ9Y
— Office for Budget Responsibility (@OBR_UK) March 6, 2024
Michael Saunders, the former Bank of England policymaker who is now senior economic advisor at the consultancy Oxford Economics, points out that the current forecasts are based on ““fiscal fantasies” – including that fuel duty will rise.
Saunders says:
On paper, the Chancellor will just about meet his fiscal rules, and the OBR forecast that the public debt/GDP ratio will fall in five years. But these forecasts rest on fiscal fantasies. They assume that petrol taxes will rise in line with inflation, even though the government has decided against doing that for fourteen consecutive years.
What’s more, they assume that the government will deliver a painful public spending squeeze – with little or no growth in real spending per head in the next few years – even though it lacks any credible plans to achieve this. The government has learnt to game the OBR framework by pencilling in future fiscal restraint without appearing to be serious about delivering it.
Households still £870 worse off on average, Labour claims, because NI cuts don’t compensation for freezing allowances
Labour claims that, despite the cut in national insurance in the budget, households are still £870 worse off on average as a result of the tax measures taken by the Tories. Labour has calculated this figure on the basis that the cuts worth £21.4bn (by 2028-29) need to seen alongside the the impact of the extra £41.1bn raised by the freeze in thresholds and allowances for tax and national insurace.
Those two figures from from this chart in the OBR’s report.
Vaping tax could double cost of highest nicotine products
The government’s planned tax on vaping liquids could double the cost of the strongest e-liquids from 2026.
The Office for Budget Responsibility say they expect it will raise £500m per year by the 2028-29 financial year, although there are “several uncertainties in the costing”.
The OBR explains:
The new tax applies a specified fixed amount of duty to a defined quantity of e-liquid and will be charged to UK manufacturers or importers. There are three rates that are differentiated according to the amount of nicotine content in the e-liquid.
It means that a vaping product that falls within the highest nicotine category and currently retailing at £3.00 (for 10 millilitres of e-liquid) will be subject to a £3.00 rate of duty (in 2026-27), raising its post-tax price to £6.60 (since we assume all of the duty will be passed through to consumers).
Vape e-liquid prices are to go up by as much as £3 depending on nicotine content
Price changes to 10ml e-liquid bottle:
✴️Nicotine-free – £1 increase
✴️0.1-10.9mg nicotine – £2 increase
✴️11mg or more of nicotine – £3 increasehttps://t.co/LlaPSL0dyM— Sophie Huskisson (@soph_husk) March 6, 2024
The budget documents released by the Treasury have more details:
The government will introduce a new duty on vaping products from 1 October 2026, with registrations for the duty opening from 1 April 2026.
The rates will be £1.00 per 10ml for nicotine free liquids, £2.00 per 10ml on liquids that contain 0.1-10.9 mg nicotine per ml, and £3.00 per 10ml on liquids that contain 11mg or more per ml. A 12-week consultation will be published on the policy design and technical details alongside the Spring Budget.
Energy minister Andrew Bowie says extension of windfall tax on energy firms ‘deeply disappointing’
Normally ministers are meant to promote the budget on social media. But Andrew Bowie, an energy minister, has posted a message on X saying the extension of the windfall tax on energy companies (EPL – energy profits levy) is “deeply disappointing”.
I agree with Douglas.
There is much in this budget to welcome. Much that is good for Scotland and our United Kingdom. And only the Conservatives have a plan.
However, the extension of the EPL is deeply disappointing. I will be working with him to resolve this.— Andrew Bowie MP (@AndrewBowie_MP) March 6, 2024
I agree with Douglas.
There is much in this budget to welcome. Much that is good for Scotland and our United Kingdom. And only the Conservatives have a plan.
However, the extension of the EPL is deeply disappointing. I will be working with him to resolve this.
Bowie is MP for West Aberdeenshire and Kincardine. The Douglas he mentions in his tweet is Douglas Ross, the Scottish Tory leader. All Scottish Tories feel strongly about this issue (see 2.20pm) and minister may be assuming that, as a Scottish MP, he has some licence to speak out about this not available to English ministers.
Hunt says ending employee national insurance ‘long-term ambition’ for Tories
With the 2p cut in national insurance being widely trailed, it was not clear this morning whether or not Jeremy Hunt had a surprise “rabbit” to pull out of the hat at the end of his speech. In so far as there was a “rabbit”, it was “the abolition of national insurance”.
This is what Hunt said about employee national insurance, and about the fact that it in effect duplicates income tax.
This is the second fiscal event where we have reduced employee and self-employed national insurance.
We have cut it by one third in six months without increasing borrowing and without cutting spending on public services. That means the average earner in the UK now has the lowest effective personal tax rate since 1975 – and one that is lower than in America, France, Germany or any G7 country.”
Because Conservatives believe that making work pay is of the most fundamental importance, because we believe that the double taxation of work is unfair, our long-term ambition is to end this unfairness.
The Telegraph’s website currently has “Hunt signals the end of national insurance” as its lead headline on its budget coverage.
But the end of national insurance seems unlikely. According to the budget red book, the Treasury raises £168bn from national insurance contributions. This figure includes the revenue from employer national insurance contributions, but that is still a huge amount of money that would have be funded by cuts or “productivity savings” in the public sector.
Experts voice doubts about Brit ISA
Hunt’s plan for a British ISA is getting a rather lukewarm reaction from the City.
As covered at 1.02pm, it will give savers an extra £5,000 tax free allowance, to be spent on UK assetts. That’s on top of the £20,000 you’re allowed to put into your ISA each year.
Claire Trott, divisional director of retirement and holistic planning at wealth manager St. James’s Place, fears that a British ISA will create more complexity.
Trott says:
“We welcome all opportunities for tax free investment with the ‘British ISA’ increasing the overall ISA allowance. However, it comes with restrictions on where you can invest which may be a turn off for some.
It also adds to the complexity of something that used to be simple, we now have multiple ISAs with various restrictions, which will probably mean more need for financial advice.”
Nimesh Shah, CEO of accountancy firm Blick Rothenberg, also has questions:
Introduction of the British ISA could give someone up to £26k in ISA savings per annum if they are also eligible for the Lifetime ISA.
I question whether we need another form of ISA – wouldn’t it have been easier to increase the £20k ISA allowance which has remained stuck at this level since 2017/18.
Bloomberg’s Merryn Somerset Webb points out that few people manage to put aside £20,000 each year (in this economy?!), so it’s a symbolic gesture really:
Only around 15% of ISA investors use full allowance at moment so the new Brit ISA coming on top is as much symbolic as anything. But good symbolic
— Merryn Somerset Webb (@MerrynSW) March 6, 2024
And Victoria Scholar, head of investment at interactive investor, points out that the UK stock market has lagged behind rivals
UK stock markets have underperformed their rivals in the US, Europe and elsewhere since Brexit. International investors have shunned the FTSE 100 amid concerns about increased perceived risk and weaker prospects for the UK economy.
The Treasury’s goal with this announcement is to try and drum up support for UK markets which are in the doldrums. Along with Brexit, the so-called Jurassic Park FTSE 100 has suffered from a heavy lack of exciting new tech success stories, in stark contrast to US markets where tech giants from Silicon Valley have largely been responsible for the major outperformance stateside.
What you need to know about the new economic forecasts
The Office for Budget Responsibility have released a video to explain their new forecasts.
Key points include:
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Inflation has fallen faster than expected, and should drop below the UK’s 2% target later this year.
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Markets expect interest rates to fall faster.
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The medium-term outlook for growth is little changed, compared to November, partly due to higher economic inactivity.
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The fiscal forecast is also little changed – lower inflation means that debt servicing costs are lower than expected, but also means lower growth from tax revenues
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This has given the chancellor a net fiscal boost of £10bn per year over the next two years, but borrowing is largely unchanged by the end of the forecast period.
OBR chief Richard Hughes says:
In his spring budget, the chancellor spends all of this windfall on another 2p cut to national insurance, and another freeze in fuel duty, whose cost is partly recouped by new taxes on vapes, carbon imports and non-doms.
There are no significant changes to the planned level of spending on public services, Hughes adds:
Sunak faces rebellion from Scottish Tory MPs over plan to extend windfall tax
Severin Carrell
Jeremy Hunt faces a rebellion from Scottish Tory MPs over his decision to extend the windfall tax on energy profits until 2029, with one energy minister, Andrew Bowie, reportedly considering resignation.
The chancellor has been under intense pressure to end the levy from vulnerable Scottish Tories, including Douglas Ross, the party’s Scottish leader and the MP for Moray, a north-east seat close to Aberdeen, the UK’s oil and gas industry capital.
Ross confirmed he will not vote for the measure, even though Hunt did listen to his pleas for a second cut to national insurance rates – a move which benefits Scottish employees who pay higher income tax rates levied by ministers Holyrood. (See 12.01pm.)
The Tories are defending three Westminster seats in north east Scotland at the next general election, including Bowie’s seat in West Aberdeenshire and Kincardine, which he holds with a wafer thin 843-vote majority over the Scottish National party.
With Scottish opinion polls putting them as low as 15%, the Scottish Tories believe championing North Sea oil and gas jobs is their strongest suit – a position undermined by Hunt’s decision to extend the levy.
To their embarrassment, the Scottish Tories also have an opposition day debate at Holyrood later on Wednesday on the sector. It was intended to highlight Rishi Sunak’s boast at the Scottish Tories’ conference in Aberdeen last Friday “we have consistently been the only major party that has backed the North Sea oil and gas industry.”
Starmer accuses the government of ducking its responsibility to the victims of the infected blood and Horizon IT scandals.
Chaos is the Tories’ world view, he says. They see Britain’s problems as an opportunity to exploit.
He says they have left the UK a nation in limbo, and “maxed out the nation’s credit card”.
Britain needs an alternative government, he says. And he ends challenging Sunak to call a general election on 2 May.
Starmer says it is only the record levels of immigration that have prevented an even deeper decline.
That is all the government has to promote growth, he says.
There is no ambition for cheaper, greener power, and no inclination to strenghten employment rights.
And where is the urgency on housing, he asks.
Starmer says Hunt has been taking lesssons in marketing from the Willy Wonka experience in Glasgow.
Tax as a share of GDP to hit the highest level since 1948
The UK tax burden is heading towards its highest level since Clement Attlee was prime minister, when Britain was starting to pay down its war debts.
The Office for Budget Responsibility reports that tax as a share of GDP will fall slightly this year (due to the cut in national insurance in January).
But it then rises gradually in every year of its forecast, rising to 37.1% of GDP in 2028-29.
That, the OBS says, which would be the highest level since 1948, and four percentage points above the pre-pandemic level of 33.1% of GDP in 2019-20.
This rather clashes with the Treasury’s claim that the chancellor is “delivering lower taxes”.
But it’s a lower figure than last November, when the OBR forecast the tax take would hit a post-war high of 37.7% of GDP by 2028-29.
Starmer accuses the government of complacency. Britain deserves better than 14 years of stagntion, he says.
But all it got was the same old formula, party first and country second.
He says Hunt said the UK had grown more quickly than countries like Germany over the past 14 year.
In per capita terms, the figures are different. The UK has not grown in per capita terms since the first quarter of 2022, he says.
Starmer says Labour supports cut to national insurance in budget
Starmer confirms that Labour supports the cut to national insurance.
But he points out that Rishi Sunak, as chancellor, promised the basic rate of income tax would be cut in 2024.
And, on the NHS, he says Jeremy Hunt as health secretary promised a paperless NHS by 2018.
In the Commons Starmer says the Tories have finally accepted Labour’s idea on non-doms. Has there ever been a better example of a party bereft of ideas?
And why did they do not it earlier?
If they had, there would have been more than 3m hospital operations, and 1.3m more dental appointments, he says.
And he tells Tory MPs that they should get used to these U-turns. It won’t be long before government asks them to back VAT on private school fees, he says.
Starmer says the story of this parliament is simple: a Conservative party clinging to the ideas of the past, and unable to generate growth.
He says the Tories have torched their reputation for fiscal responsibility, and any suggestion they will put the country first.
People are paying higher mortgages because of the Liz Truss mini-budget, he says.
And will recognise this as a con, he says.
And a “Tory stealth tax is coming their way in the form of a higher council tax bill”.
Starmer describes budget as ‘last, desperate act of party that has failed’
The division is over. The government won by 288 votes to 38.
Keir Starmer is now speaking.
He starts by referring to the budget as “the last, desperate act of a party that has failed”.
OBR: Medium-term outlook remains challenging
As Hunt sat down, the Office for Budget Responsibility released its latest assessment of the UK economy – its Economic and Fiscal Outlook.
The OBR starts by saying that the UK’s near-term growth prospects have improved, thanks to inflation falling faster than it expected in November. That has led markets to expect a sharper decline in interest rates.
The OBR says:
This strengthens near-term growth prospects and should enable a faster recovery in living standards from last financial year’s record decline.
But the medium-term economic outlook “remains challenging”, the fiscal watchdog warns.
The OBR has lifted its estimate for the current UK population, following the 2021 Census and net migration since then. But, it also sees rising economic inactivity (more people are unable to work due too ill health).
And that means the economy, as a share of the population, is expected to be slightly smaller than expected in November. That means even worse living standards:
The OBR says:
One of the biggest changes to our economy forecast is an increase in the size and growth of the UK population. But higher and rising levels of inactivity offset its impact on the overall size of the workforce, leaving our forecast for the level of GDP in five years virtually unchanged from the autumn, and the level of GDP per person slightly lower.
GDP growth in 2023 was weaker than expected in our November EFO. But lower forecast energy prices and interest rates support slightly stronger growth over the next few years, leaving the level of GDP largely unchanged by 2028 relative to our last forecast.#Budget2024 pic.twitter.com/6MucV5Iiui
— Office for Budget Responsibility (@OBR_UK) March 6, 2024
