The prospect of tax cuts has become more tangible, with businesses and consumers watching closely for announcements from the upcoming March Spring Budget. Figures indicate public sector borrowing fell to £7.8bn last December, giving Jeremy Hunt more leeway to offer an incentive to voters who feel keen on a new government.
According to data released by the Office for National Statistics (ONS), December’s borrowing was £8.4bn less than a year earlier, making it the lowest figure for the month since 2019.
This figure is substantially lower than the predicted £14bn by the Office for Budget Responsibility, thanks to lower inflation-related debt interest costs.
As interest rates are expected to continue trending downwards, analysts believe the Chancellor might have a fiscal wiggle room of about £20bn in the March Budget, allowing him to unveil measures that may include a 1p cut to income tax.
Will tax cuts improve the economy?
Speaking at the World Economic Forum in Davos last week, Chancellor Jeremy Hunt mentioned that countries with lower taxes have more dynamic, faster growing economies.
While tax cuts are theoretically well-intentioned, analysts have pointed towards other issues they could provoke.
Government borrowing overall has increased sharply in recent years. Its debt currently sits at £2.67 trillion as of the end of December, which is equivalent to 97.7% of the size of the UK economy, as measured by GDP.
The rise in debt in recent years is owed to initiatives to support the economy during the COVID-19 pandemic and energy bill subsidies.
Tax cuts would only be expected to provide temporary relief, as an exclusive report by Bloomberg unveiled that UK treasury officials told Rishi Sunak in 2022 that tax cuts would have a ‘low impact’ on growth.
This view is at odds with the Chancellor’s promise of a 1980s style boom sparked by giveaways planned for the Spring Budget announcement.
A political lever?
The additional fiscal windfall could give the Tories an opportunity to turn around political opinion ahead of the general election later this year. According to voting intention polls, 44.3% of UK voters are expected to vote Labour, as opposed to 24.9% that would back the Conservatives.
Tax cuts could help sway the business community in favour of the Tories. According to exclusive survey results from the Startups 100 Index, as things currently stand, 57% of businesses voiced that a change in government would lead to a positive impact on the economy.
But, some 54% of businesses admitted their vote would be affected by business incentives. This could indeed include a reduction in corporate tax rates, as well as subsidies for workforce skills training, and grants supporting sustainable practices.
While voter intent ahead of the election will be swayed by a number of other policy factors, tax cuts could get some more stakeholders in the Tory corner as the incumbent government battles against unfavourable public opinion numbers.
