Hunt considers National Insurance cut and vape tax in Budget

Rishi Sunak and Jeremy Hunt speak during a Cabinet meeting
Rishi Sunak and Jeremy Hunt speak during a Cabinet meeting at a factory in East Yorkshire on Monday

Jeremy Hunt is considering cuts to National Insurance rather than income tax in next week’s Budget and could announce a duty on vapes, reports suggest.

According to The Times, the Chancellor has shelved planned cuts to income tax and stamp duty after official forecasts indicated he will have less money to spend than expected.

Mr Hunt assured colleagues on Monday night that he would prioritise “smart tax cuts” that reward working people, Bloomberg reported.

His remarks to the One Nation Conservatives came after that group urged him to bring voters on to the party’s side by addressing cost-of-living concerns with a Budget that would “cut taxes, drive growth and put more money back into hardworking, ordinary people’s pockets”.

Mr Hunt had already indicated he would not be able to make big tax cuts on March 6  because he would not have the “room” he had in the Autumn Statement when NI was cut from 12p to 10p.

It is expected that he will reduce workers’ NI by an additional percentage point, at a cost of about £4.5 billion a year. A further freeze on fuel duty is also reportedly a likely option.

Rishi Sunak and Mr Hunt had been hoping a 2p reduction in income tax would win over voters ahead of the general election.

But The Times suggested those plans, which would cost £13.7 billion per year, were considered unaffordable given the latest figures from the Office for Budget Responsibility (OBR).

Whitehall sources last week told The Telegraph the OBR had fiscal headroom – the amount of money the Government can spend without breaking its promise to get debt falling within five years – hovering around the same as it was in the autumn when it was at an unusually low £13 billion.

Mr Hunt now faces the challenge of finding new revenue streams without getting voters offside.

It is understood a “vaping products levy” is considered a politically safe option for the Chancellor.

The new levy would make importers and manufacturers pay more for the liquid in vapes, with the hope being that cost would be passed on to the consumer and therefore make it less affordable, particularly for children.

Tax cuts threaten public services, IFS warns

The Institute for Fiscal Studies (IFS) on Tuesday said the Chancellor should resist announcing tax cuts at the Budget unless he can show how he will pay for them.

The IFS said that current post-election spending plans already meant further cuts to unprotected public services - such as local government and the court system – which reducing taxes would only exacerbate.

The think tank said failing to set out exactly what spending cuts would be used to “pay for” tax cuts would “lack credibility and transparency”.

Martin Miklos, research economist at the IFS, said: “In November’s Autumn Statement, the Chancellor ignored the impacts of higher inflation on public service budgets and instead used additional tax revenues to fund eye-catching tax cuts.

“At next week’s Budget, he might be tempted to try a similar trick, this time banking the higher revenues that come from a larger population while ignoring the additional pressures that a larger population will place on the NHS, local government and other services.”

The IFS suggested in an analysis that the budget deficit may be around £11 billion smaller than it was forecast to be in November, but still much higher than it was forecast to be in March 2022.

The IFS also said the faster population growth projected by the ONS could boost revenues, but also meant current plans would see per-person spending rise by just 0.2pc per year after the election.

Factoring in likely spending plans for the NHS, defence, schools and childcare meant other departments would see around £20 billion per year in real-terms cuts by 2028-29, with another £20 billion per year set to be taken out of investment spending.

Both the IFS and OBR have previously expressed scepticism that the spending cuts pencilled in for after the election will be delivered, with Paul Johnson, the IFS director, telling reporters the Chancellor was “to some extent ... gaming his own fiscal rules”.

Read Telegraph readers’ message to Jeremy Hunt ahead of the Budget, here