[ad_1]
Amid weak economic growth prospects, the British government announced it would cut taxes for workers ahead of this year’s general election.
Britain’s top financial official Jeremy Hunt told lawmakers on Wednesday he would cut National Insurance, the payroll tax paid by workers and employers that funds state pensions and some benefits, by two percentage points. It would reduce the rate to 8 percent for about 27 million workers, and follow a two percentage-point cut announced less than four months ago. Mr Hunt said that overall, the cuts would save the average employee about 900 pounds ($1,145) a year. There were also rate cuts for self-employed workers. Both changes will take effect in early April.
“We can now help families not only with temporary cost of living support, but also with permanent cuts in taxation,” Mr Hunt, the Chancellor of the Exchequer, told Parliament. “We do this to provide much-needed support during challenging times. “But also because conservatives know that lower taxes mean higher growth.”
Mr Hunt also announced a number of smaller measures, including freezing taxes on alcohol and fuel, proposals to increase productivity in the public sector and ending tax benefits for the overseas earnings of British residents whose permanent home is abroad. Is.
The Chancellor is under political pressure from the ruling Conservative Party to reduce taxes ahead of the general election, which is expected to be held this year, although no date has yet been set. The party is far behind the opposition Labor Party in the elections.
But Mr Hunt’s ability to sweeten voters has been hampered by the fact that the British economy is growing slowly – if at all. Funds are needed for expanded public services, and there are calls to invest more in infrastructure. The Chancellor also has to meet his own self-imposed budget rules, giving him even less fiscal room for manoeuvre.
By cutting some taxes, the Conservative Party is hoping to change the narrative that their 14-year rule has come to an end dominated by tax increases. But because of the freeze on income tax and other measures, the tax burden, measured by tax receipts as a percentage of GDP, is set to increase by the most since World War II. Reducing the income tax, a more broad-based tax, was reportedly rejected over concerns about the cost of such gifts and the risk that it would increase inflation.
Nevertheless, the sentiment among economists and other analysts is that this budget will hamper the next government – possibly a Labour-led government – by providing tax cuts today and providing less funding for many government departments after the election.
According to economists of the Institute for Fiscal Studies, it seems extremely difficult to meet the reduction in expenditure made after the elections.
The Conservative Party is struggling for its electoral future against an unfavorable economic backdrop. Although inflation has fallen from double-digit highs to 4 percent, the Bank of England is wary of cutting interest rates too soon. Meanwhile, businesses are increasingly failing, and voters say they want measures to help ease the high cost of living.
The British economy ended last year in recession. It is expected to grow 0.8 percent this year and then 1.9 percent in 2025, according to the Office for Budget Responsibility, an independent fiscal watchdog.
“Because we have got inflation under control, we will soon get growth under control,” Mr Hunt said.
Budgets across Europe are under pressure as economies face higher interest rates and the need to spend more on defense and invest more aggressively in the green transition. At the same time, officials are trying to reduce debt levels after spending heavily during the pandemic and support families through an energy crisis triggered by Russia’s invasion of Ukraine and the shutdown of a major source of natural gas. Have been. Last month, the French government announced spending cuts of 10 billion euros ($10.9 billion).
On Wednesday, Mr Hunt said he would keep daily government spending growth at 1 per cent adjusted for inflation over the next five years. And instead of increasing those budgets, the money would be “better spent,” he said, listing proposals to use technology, including artificial intelligence, to increase productivity in health, policing and the courts.
The British government has previously said it will keep defense spending constant as a share of national income. Mr Hunt has outlined big increases in child care funding, money for the National Health Service and a pledge to keep spending on schools stable after adjusting for inflation. This leaves other government departments such as courts, prisons and local government facing potentially huge cuts. High inflation has also destroyed the strength of earlier spending plans.
Due to this the next government gets into trouble. To maintain tax cuts and pre-existing spending commitments, the next government will need to allow cuts to these other spending, despite voters demanding greater investment in public services. Or, the next government will need to raise taxes, something none of the major political parties want to suggest before the elections.
But attitudes may change. If the economy grows more strongly or productivity increases, public finances may become more accommodative. To boost this, Mr Hunt stressed that his plans, including cuts to National Insurance, would encourage people to return to work. Today, 700,000 more Britons are reported to be out of the workforce than before the pandemic.
Some of the tax cuts will be funded by changes to the tax treatment of foreign income for so-called non-domiciled residents, people whose permanent home is outside the UK. Mr Hunt said it would raise £2.7 billion a year by 2029.
The change poses a challenge for the Labor Party, which planned to revoke the status of “non-doms” in order to raise funds to fulfill some of its election promises such as the recruitment of NHS staff and an expanded school breakfast service Was.
Making changes to the non-Dome rules “increases the amount of money the opposite party plans to use for spending,” Mr Hunt said. “But today a Conservative government makes a different choice. We use that revenue to help cut taxes on working families.
Labor Party leader Keir Starmer said the government was asking Britons to “pay more and more for less and less”.
He further said that this is a ,The desperate move to finally accept Labour’s arguments on the non-dom tax rate after years of resistance.” And so, “If they are now sincere in their support of this policy, the question they have to answer today is Why didn’t they do it earlier?”