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 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.”
Announcing a raft 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.
However, 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 a flagship Labour policy, 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.
Promising to lay the groundwork for economic growth, the chancellor announced updated forecasts from the Office for Budget Responsibility upgrading the UK’s growth outlook after a faster-than expected fall in inflation.
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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.
Aiming to fast-track the measure in the hope that voters feel the benefit before the election, the government will bring forward legislation from as early as next week to enable the cut to national insurance come into effect from April.
The widely expected decision follows heavy lobbying by Tory backbenchers pushing for bumper pre-election giveaways, with the hope that a crowd-pleasing budget might help narrow a commanding Labour lead in opinion polls.
The decision to prioritise tax cuts will, though, 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.