Jeremy Hunt’s budget giveaway ‘will act as sweet filling in tax sandwich’

Jeremy Hunt’s expected pre-election giveaway budget will be sandwiched between £20bn of tax increases already implemented and a further £17bn of hikes pencilled in for after polling day, a thinktank has said.

The Resolution Foundation said it expected Hunt to freeze fuel duty and cut income tax on 6 March but warned the chancellor’s “tax sandwich” was based on the “fiscal fiction” of £30bn of spending cuts in the next parliament.

Coinciding with the release of the last set of figures for the public finances before the budget, a report from the thinktank said lower interest rates would reduce government borrowing and increase Hunt’s room for manoeuvre by £10bn to £23bn.

A separate study by Capital Economics said it expected Hunt to have only £15bn to play with but, like the Resolution Foundation, the consultancy said it was pencilling in tax cuts of about £10bn in the budget.

James Smith, the research director at the Resolution Foundation, said: “The chancellor may see some small improvements to the outlook for the public finances ahead of his March budget. He and the prime minister have made it clear they’ll spend any improvement on pre-election tax cuts.

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“But what Britain is being offered is really a ‘tax sandwich’. Juicy tax cuts in this election year are sandwiched between far bigger tax rises already introduced last year. And highly unusually, the government has already announced plans for a chunky package of tax rises that will come into effect after polling day.

“History also tells us those future tax rises will be even bigger, as governments tend to hike taxes early in a new parliament. Implausibly large cuts to public services that are pencilled in for after the election mean history may well be about to repeat itself.”

Among the options for the chancellor are to scrap the planned 5p increase in fuel duty at a cost of £2bn next year, cutting the basic rate of income tax by 1p or cancelling the personal allowance freeze in 2024-25 (£7bn each), cutting employee national insurance by 1p (£5bn), raising the child benefit withdrawal threshold from £50,000 to £70,000 (£2bn) or abolishing it altogether (£4bn).

Tax increases already announced for after the election include higher stamp duty and three further years of income tax threshold freezes.

“History, and significant spending cuts pencilled in for after the election, tell us that further tax rises may well be announced after polling day – as we saw in 1993, 1998, 2011, 2016 and 2020,” the Resolution Foundation said.

The thinktank said the biggest “fiscal fiction” was that day-to-day spending on public services would rise by just 1% after the election.

Given the protection offered to the health, education and defence budgets, that would require per capita cuts of 17% to unprotected departments such as the Home Office and the Ministry of Justice, and to local government, by 2028-29.

Avoiding those cuts would require £30bn of extra spending, the Resolution Foundation said.