What to expect in Jeremy Hunt’s Budget – from tax cuts to scrapping holiday let perks
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Could our National Insurance payments be cut next week? There have been plenty of rumours about whether the Chancellor might cut the main rate of NI on employees’ contributions in the Budget on March 6, in a bid to catch voters’ attention and make a dent in Labour’s strong lead in the opinion polls.
A new vaping tax could be introduced to help pay for any NI cut. Alternatively, Jeremy Hunt could cut the main rate of income tax – although perhaps by only 1p in the pound, as reducing income tax costs more than cutting NI – or increase income tax thresholds.
The Chancellor is also reportedly considering scrapping the “non-dom” status to fund these tax cuts.
Here, we cover the practicalities of the Budget announcement and attempt to foresee its likely contents. We’ll update this article as the Budget approaches.
When is the spring Budget?
The Budget will take place on March 6. Normally the Chancellor begins to speak at about 12.30pm, as soon as Prime Minister’s questions have ended.
How can I watch it live?
You can keep informed of the latest news, predictions and what it means for you in the day’s Budget blog, and we will be streaming Chancellor Jeremy Hunt’s statement live from 12.30pm.
You can also join The Telegraph’s consumer champion Katie Morley and Associate Editor Camilla Tominey as they discuss what the Budget means for your money and for the future of the Government.
Will Jeremy Hunt cut taxes?
The Chancellor is reportedly looking to find ways to slash 1p or 2p from personal taxes – either National Insurance or income tax. However, over the weekend Mr Hunt cautioned that it would be deeply unconservative to cut taxes in a way that wasn’t fully funded, adding that he hopes to move to a lower tax economic model over the longer term.
Income tax
Blick Rothenberg, the leading tax and advisory firm, was one institution to say a 1p cut in the basic rate of income tax was a likely option. Experts at a pre-Budget conference at the Resolution Foundation, a think tank, last week agreed that a cut in the rate of income tax was the most likely of the possible ways to put more money in voters’ pay packets before the election.
Torsten Bell, the foundation’s chief executive, pointed out that Rishi Sunak had expressed a wish to cut the basic rate to 16pc in time in his pitch to Conservative party members in the leadership election.
National Insurance
Alternatively, the Chancellor could cut the rate of National Insurance as a means to put more money in voters’ pockets. Predictions have suggested a 1p or 2p cut might be on the cards. As a cut in NI costs less that the equivalent cut in income tax, he could even consider a 2 percentage point cut in NI contributions. Treasury analysis shows a 2p cut in the basic rate of income tax would cost £13bn while a 2p cut in employees’ National Insurance would cost £9bn.
However, analysts at the Institute for Fiscal Studies (IFS), the respected think tank, have warned that such a big cut would be unaffordable.
A 1p cut could potentially save £224.30 for someone earning £35,000, while anyone earning more than £50,270 could save £377, according to analysis from HW Fisher, an accountancy firm.
“The proposed reduction of employee National Insurance to 9pc would close the gap between rates paid by employees and the self-employed to just 1pc if there is no change to the self-employed NI rates,” said Sam Dewes, tax partner at HW Fisher.
“However, any benefits will be capped for earners above £50,268 unless adjustments are made to the upper NI rate.”
Clients of the Wealth Club, a high net-worth investment service, suggested scrapping employee NI altogether and offsetting the cost with higher income tax rates that apply across all forms of income. This would, they said, simplify the tax system and rectify lower rates of tax on unearned income.
Personal allowance
One alternative to a cut in the rate of income tax or NI would be to end the policy of “fiscal drag” and raise the tax-free personal allowance to take some account of wage inflation, which has been running at high levels to keep up with prices.
Blick’s experts said that, while an increase in the personal allowance looked less likely than a cut in the rate of income tax this time, the Budget could outline the Government’s plans for the allowance in future.
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Tax on holiday lets
Mr Hunt is considering scrapping tax perks for holiday let owners in what critics are describing as a “£300m raid on landlords”. The Chancellor is expected to say the move will help revive the rental markets in popular holiday locations such as the Lake District, where a high proportion of properties are converted to holiday lets, depriving local communities of council tax revenue and permanent accommodation.
Airfare duty on business flights
Mr Hunt is considering increasing airfare duty on business class flights as one of a swathe of measures targeting the wealthy in order to pay for tax cuts in this week’s budget. The move is estimated to raise hundreds of millions of pounds.
Cutting stamp duty
From the right of his party, Mr Hunt is facing calls to cut stamp duty to encourage downsizing and free up homes for buyers as part of a 10-point plan by the Legatum Institute think tank.
The One Nation Caucus, a group of 107 Conservative MPs, has also urged for stamp duty to be scrapped, telling Jeremy Hunt this would be a way to “free up” housing stock. Older people with large houses have cited stamp duty costs as one of the reasons preventing them from moving to a smaller home.
Stamp duty is charged based on the value of a property being purchased. First-time buyers currently pay 0pc on values up to £425,000, while a homeowner looking to downsize would have to pay £8,750 in stamp duty for a property worth £425,000.
A spokesman from the IFS has also suggested stamp duty should be cut on shares. Paul Johnson, director of the IFS, said the tax charges “clearly create inefficiencies in the market”.
Stamp duty is currently charged when you buy shares, based on the price you pay for them. You usually pay a tax or duty of 0.5pc on the transaction, or 1.5pc if you transfer shares into some depositary receipt schemes or clearance services.
The Legatum Institute, whose members include former prime minister Liz Truss, is also pushing for cuts to childcare costs and the unfreezing of income tax thresholds. Keeping the bands static has pushed more taxpayers into higher rates, negating the impact of any personal tax cuts.
They are also calling on the Prime Minister to abolish non-financial reporting requirements for businesses, and say the IR35 tax rules – which target those who work off-payroll – should be scrapped because most are Tory voters.
Scrapping non-dom status
In order to fund expensive tax cuts, the Chancellor is said to be mulling over scrapping non-dom status to raise extra revenue.
Non-domicile status allows foreign nationals living in the UK, but who are officially domiciled overseas, to avoid paying UK tax on any overseas income or capital gains for their first seven years in the country.
However, our analysis found this measure could cost Britain more in the long run.
New taxes on vaping
Mr Hunt is reportedly considering new taxes on vaping as a means to help fund cuts in income tax or NI. If he does tax vaping, he is thought likely to increase taxes on tobacco so that smoking remains the more expensive choice.
VAT
Other possible tax changes include a cut in the rate of VAT on energy-saving materials supplied by builders (householders already benefit from a tax break if they buy the materials directly), and bringing the VAT on electricity for electric cars supplied at public charging stations in line with the lower rate that applies if you charge your EV at home.
The Chancellor could also reintroduce tax-free shopping for tourists, which might encourage more to choose Britain over other destinations. Blick said any new tax-free shopping regime could be administered by retailers rather than the Government, which meant it was likely to run more smoothly.
Inheritance tax
Could the Chancellor cut inheritance tax? Experts at the Resolution Foundation’s conference said it was most unlikely. “It would send a very strange message [to voters],” one said. However, changes such as the abolition or curtailment of the “business relief” tax break or making pension assets liable to IHT, possibly to fund a cut in the main rate of IHT, were possible.
Sources at Westminster say a cut in IHT at this Budget has been ruled out, although proposals for change could appear in the Conservatives’ election manifesto.
The Resolution Foundation’s panel also discounted the chance of any rise in fuel duty in an election year.
Stamp duty
A major group of moderate Tory MPs has recently urged the Chancellor to abolish stamp duty for those downsizing in order to help young people get on the property ladder.
The One Nation Caucus, a group of 107 Conservative MPs, told Jeremy Hunt this would be a way to “free up” housing stock. Older people with large houses have cited stamp duty costs as one of the reasons preventing them from moving to a smaller home.
Stamp duty is charged based on the value of a property being purchased. First-time buyers currently pay 0pc on values up to £425,000, while a homeowner looking to downsize would have to pay £8,750 in stamp duty for a property worth £425,000.
A spokesman from the IFS has also suggested stamp duty should be cut on shares. Paul Johnson, director of the IFS, said the tax charges “clearly create inefficiencies in the market”.
Stamp duty is currently charged when you buy shares, based on the price you pay for them. You usually pay a tax or duty of 0.5pc on the transaction, or 1.5pc if you transfer shares into some depositary receipt schemes or clearance services.
Lifetime Isa penalty
The Chancellor is considering cutting the early access penalty on Lifetime Isas from 25pc to 20pc for first home buyers, PoliticoEU has reported. Such a change would mean that anyone who needed to withdraw cash from their Lisa early or for a home worth more than the scheme’s limit of £450,000 would lose the government bonus but not their own savings.
This could be announced alongside an increase in the £450,000 limit on homes that can be purchased with a Lisa. It is not clear whether any changes would also affect those saving for retirement.
“Such a change would make Lisas even more attractive for groups such as the self-employed,” said Helen Morrissey of Hargreaves Lansdown, the investment company.
99pc mortgages
Mr Hunt had reportedly been mulling over introducing 99pc mortgages – but this idea has since been scrapped after backlash from banks.
The idea was that young people could get on the housing ladder with smaller 1pc deposits, with the rest coming from a 99pc mortgage backed by the state. However, Treasury insiders said the plans have been shelved after lenders warned they would be forced to charge higher interest rates on 99pc loans because they would be putting up more cash to support the loan, while borrowers would likely be higher risk. They also said the plans risked a surge in defaults among borrowers.
Will any taxes go up?
One possible rise, Blick said, is the imposition of VAT on the full price of a ride with Uber, Bolt or similar “ride hailing” services. Currently, VAT is charged only on the difference between the charge to the passenger and the amount paid to the driver. The change would result in a rise in the amount paid by the passenger of about 15pc, the firm said.
What are the changes the Chancellor should make, but won’t?
Blick’s experts said Mr Hunt should make more small companies eligible for the lower rate of corporation tax of 19pc by increasing the threshold. This, they said, would encourage more overseas companies to set up in Britain, because such subsidiaries are often quite small.
The Resolution Foundation panel said the introduction of a “Great British Isa” to boost investment in London-listed companies was unlikely, although other measures with that aim were possible.
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Budget trivia
Why do you never see the Speaker of the Commons during a Budget?
Traditionally the chief deputy speaker, who goes by the title of Chairman of Ways & Means, chairs the Budget debates rather than the Speaker. The current Chairman of Ways & Means is Dame Eleanor Laing, so she is likely to preside over this year’s Budget.
By tradition, the Chancellor, unlike ministers at the despatch box at any other time of the year, may drink alcohol during the Budget speech if they wish. Former chancellor George Osborne chose to drink mineral water. Other chancellors have chosen mineral water (Gordon Brown and Alistair Darling), whisky (Kenneth Clarke), spritzer (Nigel Lawson), gin and tonic (Geoffrey Howe), brandy and water (Benjamin Disraeli) and sherry and beaten egg (William Gladstone), according to the Parliament website.
Gladstone also holds the record for delivering more Budget speeches than any other chancellor: he gave 12 of them.
