Chancellor: I hope to show a path to reducing tax burden in prudent Budget

The Chancellor has said he hopes to use the Budget to “show a path” in the direction of tax cuts, but stressed any reductions in taxation would have to be “prudent”.

During interviews with broadcasters on Sunday, Jeremy Hunt said he wants Britain to “move towards a lower tax economy” and that he feels a “moral duty to leave as much money in people’s pockets as possible”.

But he said any tax cuts will have to be “sustainable” and “affordable”.

Ruling out borrowing to pay for tax cuts, Mr Hunt told the BBC’s Sunday with Laura Kuenssberg programme: “I do want, where it is possible to do so responsibly, to move towards a lower tax economy, and I hope to show a path in that direction.

“This will be a prudent and responsible Budget for long-term growth, tackling inflation, more investment, more jobs and that path to lower taxation as and when we can afford that.”

He told Sky News the 2p cut to national insurance in the autumn statement in November was a “turning point” and he hopes to “make some progress on that journey” on Wednesday.

Mr Hunt’s tone over recent months appears to have become more cautious on the prospect of delivering the tax cuts many Conservative MPs have been hankering for in the Budget.

In January, Mr Hunt compared himself with Nigel Lawson, Margaret Thatcher’s tax-cutting former chancellor, as he argued the Government’s economic plan was working and that meant “cutting taxes”.

But only weeks later in February, he was warning the Cabinet that the prospect for tax reductions in March looked more narrow than it did at the autumn statement.

Since those comments, data from the Office for National Statistics has confirmed the British economy slipped into recession at the end of 2023.

In an interview with The Sunday Telegraph, Mr Hunt said the financial forecasts, setting out how much so-called “headroom” he has in order to meet his fiscal rules, has “gone against us”.

The outcome is likely to curtail his ability to serve up pre-election giveaways and chop back the high overall tax burden.

According to The Sunday Times, the Office for Budget Responsibility told the Chancellor on Wednesday he has £12.8 billion of headroom to play with – £2 billion less than the figure the Treasury is said to have previously been basing its calculations on.

The newspaper said the Chancellor is due to meet Prime Minister Rishi Sunak on Sunday evening to make a final decision on whether a 2p cut to the basic rate of income tax is affordable in the Budget.

No 10 and No 11 are said to be weighing up if it is possible to administer such a cut or whether to reduce national insurance contributions further.

The announcement in November, which came into force in January, did not reduce taxation for pensioners – a key voter demographic for the Tories – as they do not pay national insurance.

Mr Hunt is under pressure from Tory MPs to serve up pre-election handouts in what could be the last economic set-piece from the UK Government before voters go to the polls in a contest that is widely expected in the autumn.

The tax burden is reaching record levels, with it expected to rise to its highest point since the Second World War before the end of this decade as the country looks to pay back heavy borrowing used to support people through Covid and the energy spike in the aftermath of Russia’s invasion of Ukraine.

The Chancellor told Sky that bringing down the tax burden would mean “being responsible with public spending and showing that we are going to spend it more carefully”.

It comes after the Treasury announced the Budget will include an £800 million package of technology reforms, including the further rollout of artificial intelligence, designed to free up time for those on the front line of public services.

The department said the changes have the potential to deliver £1.8 billion worth of benefits to public sector productivity by 2029.

Mr Hunt — who said he still believes he will be Chancellor both before and after the next election, despite heavily trailing Labour in opinion polls — set out plans to establish a “contrast” between the vision of Mr Sunak and Sir Keir Starmer in the Budget.

The pledge to draw a line between the governing and Opposition party is despite reports swirling that he is preparing to use one of Labour’s key fiscal policies to help balance the Budget.

He is thought to be considering abolishing the non-dom status as a potential way of raising revenue, despite resisting the idea in the past.

Non-domiciled status allows foreign nationals who live in the UK, but are officially domiciled overseas, to avoid paying UK tax on their overseas income or capital gains.

The Prime Minister’s wife Akshata Murty has previously enjoyed non-dom status.

Labour’s shadow education secretary Bridget Phillipson said it would be an “abject humiliation” for the Tories if they implemented Labour’s nom-dom policy given Cabinet ministers had “spent years rubbishing this idea”.

“If they were to do it it would just demonstrate that it is Labour who are leading the charge when it comes to the battle of ideas in this country,” she told Sky News’ Sunday Morning With Trevor Phillips.

Shadow chancellor Rachel Reeves told the Sun On Sunday that Labour would have to ”revisit our own plans” if her opposite number adopts the policy, which her team has calculated could raise as much as £2 billion.