Jeremy Hunt has announced a 2p national insurance cut in his budget as a pre-election gambit to revive flatlining opinion poll ratings and reboot Britain’s economy from recession.
In what could be the last major economic intervention before voters go to the polls, the chancellor said the government was making progress on its economic priorities and could now help hard-pressed families by permanently lowering certain taxes.
However, his budget will still leave tax as a share of national income at 37.1%, the highest since 1948, according to official forecasts.
The two-percentage-point cut for 27 million workers comes after an identical reduction in national insurance in the autumn statement, with the total reduction worth about £900 a year for the average worker.
It means earners will now pay 8% of their taxable salary in national insurance contributions, down from 12% last year.
“We will continue to cut national insurance contributions as we have done today so we truly make work pay,” Hunt told MPs. “We stick to our plan with a budget for long-term growth: it delivers more investment, more jobs, better public services and lower taxes.”
Labour, however, accused the Conservatives of having overseen 14 years of economic failure. Keir Starmer, the party leader, called the budget “the last desperate act of a party that has failed”.
He added: “An economy smaller than when the prime minister entered Downing Street – the textbook definition of decline – that is their record. I mean, after 14 years, who do they actually think feels better off?”
Announcing a series of revenue-raising measures to fund his plans, the chancellor announced he would abolish the current tax breaks for “non-doms” to raise £2.7bn a year, alongside other increases, including the extension of a windfall tax on oil and gas companies.
The oil and gas tax change has already caused upset on the Conservative benches, however. Douglas Ross, the Tory leader in Scotland, is reported to have had a “heated” row with Hunt and Rishi Sunak over the policy earlier in the week.
And less than an hour after the chancellor finished speaking, Andrew Bowie, an energy minister and Scottish MP, tweeted: “I agree with Douglas … the extension of the EPL [windfall tax] is deeply disappointing. I will be working with him to resolve this.”
There were also giveaways for the wealthiest, with the higher rate of capital gains tax imposed on property sales reduced by four percentage points, from 28% to 24%. In a move designed to appeal to middle earners, the chancellor also announced plans to increase the threshold at which parents start paying a high-income child benefit charge, from £50,000 to £60,000.
In a highly political move that involved the chancellor adopting Labour’s flagship policy on “non-doms”, Hunt said the opposition would have used the measures to finance its spending plans. “We use that revenue to help cut taxes on working families,” he said.
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Labour had planned to use the money raised by ending the non-dom regime to pay for several spending measures, including creating more GP and dentist appointments.
Starmer said Labour would back the cut in national insurance, leaving him the option of raising other taxes to pay for their spending plans or dropping them altogether.
Promising to lay the groundwork for economic growth, the chancellor announced updated forecasts from the Office for Budget Responsibility (OBR) upgrading the UK’s growth outlook after a faster-than expected fall in inflation. Economists say much of that growth will come from higher immigration, after the OBR raised its medium-term forecast for net migration by 70,000 to 315,000.
With Britain’s economy in recession, the OBR estimates growth will pick up to 0.8% this year, before rising to 1.9% in 2025.
The government will bring forward legislation from as early as next week to enable the cut to national insurance to come into effect from April, in the hope that voters feel the benefit before the election.
The cut, which was widely expected, follows heavy lobbying by Tory backbenchers pushing for bumper pre-election giveaways, with the hope that a crowd-pleasing budget might help narrow Labour’s commanding lead in opinion polls.
The decision to prioritise tax cuts will, however, mean imposing a tougher austerity drive on government departments at a time when public services are crumbling, with elevated NHS waiting lists and councils facing bankruptcy.