Jeremy Hunt’s pre-election budget has analysts dissecting the implications of tax cuts nestled within a ‘tax sandwich’ of increases, as he attempts to balance immediate relief and future fiscal responsibility. Here’s the full story.
Lighten The Load
Following the avalanche of bad economic news over the last few weeks, Rishi Sunak’s government is looking for anything they can give the public to lighten the financial load.
Much Anticipated Budget
Chancellor Jeremy Hunt’s much anticipated Budget is a chance for the embattled government to help citizens struggling with the ongoing cost of living crisis.
Rose Tinted Glasses
However, the news might not be as rosy as everyone might have hoped, with Hunt’s fiscal manoeuvring drawing the attention of analysts and sceptics alike.
Delicate Balance
Hunt seems to be attempting to balance the already enacted tax increases and planned future rises.
“Tax Sandwich”
The Resolution Foundation has described Hunt’s plans as a “tax sandwich,” characterized by significant tax rises which have already been put in place, followed by anticipated cuts before the elections, with future tax rises to follow a Conservative victory.
Unclear Finances
The latest figures for the public finances are unclear, with different projections suggesting varying degrees of fiscal flexibility for the chancellor.
Ideological Analysis
Differing think tanks have produced different analyses that tend to lean more towards their ideological underpinnings than strict reality.
£23 Billion
The Resolution Foundation, an independent think tank, anticipates a potential £23 billion surplus due to lower interest rates.
£15 Billion
However, the financial services think tank Capital Economics estimates a more conservative surplus of £15 billion.
Tax Cuts
Regardless of the numbers reached, both foresee a portion allocated for tax cuts in the upcoming Budget.
Red Meat
Hunt is undoubtedly attempting to throw some red meat to the tax-averse conservative base.
March Budget
James Smith, Research Director at the Resolution Foundation, was at pains to stress this point, “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.”
Lessons From History
However, Smith also cautioned, stating, “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.”
Several Options
Several options are on the table, including a freeze to fuel duty, adjusting income tax rates, or revising benefit thresholds.
Difficult Decisions
Despite these options, Hunt still faces difficult decisions on where to allocate resources, with whatever choice he makes having implications for public support and the health of the economy.
Specter of Tax Increases
Despite the much-anticipated relief that follows proposed tax reductions, the spectre of tax increases in the future hangs over any discussions of the Budget like a shroud.
Stamp Duty and Income Tax
Tax increases slated for introduction post-election include elevated stamp duty rates and an additional three years of income tax threshold stagnation.
“Fiscal Fiction”
The government’s contention that day-to-day spending on public services would rise by only 1% was described by the Resolution Foundation as a “fiscal fiction.”
Spending Cuts
Such a slight rise in spending would necessitate cuts in other areas of public spending, though health, education, and defence budgets have been ring-fenced.
Public Services Collapsing
At a time when many public services are on the brink of collapse, any additional cuts will be a hard sell for the government to make to the public.
Bankrupt Local Governments
The Resolution Foundation has suggested that departments like the Home Office and local governments, several of which have recently declared bankruptcy, would likely bear the brunt of potential spending cuts.
£30 Billion Extra
According to the Resolution Foundations calculations, the government would need to come up with £30 billion extra to spend to avoid cuts to those departments.
Economic Toll
The need for increased spending is becoming evident in light of the dire state of public services, the economic toll on families up and down the country, and the expected budgetary tax cuts.
Safeguarding Public Services
The need to safeguard vital public services and mitigate the impact of austerity measures will require a substantial increase in public spending.
Promising Much, Delivering Little
The government’s current attitude is one of promising much and delivering little, holding tax cuts as paramount to the economic malaise the country finds itself in.
Election Giveaway
As the budget announcement approaches, citizens await the unveiling of policies that will shape the country’s economic trajectory for the foreseeable future, at least until the upcoming election.
The Upcoming Election
Following the election, the finances of the country, the tax burden on citizens, and the health of vital public services will depend entirely on which government is elected.
The post Budget Balancing Act: Hunt’s ‘Tax Sandwich Strategy’ Before the Ballot May Leave a Bad Taste for Many first appeared on Pulse365 Limited.
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