Lower Borrowing – Possible Tax Cuts
As the UK government borrowed much less than expected in December last year, experts are speculating about the possibility of a tax reduction in the budget. The Office for National Statistics (ONS) reports that by the end of 2023, borrowing had decreased to £7.8 billion; the decrease in inflation has resulted in a reduction in interest payments. Given the latest figures, analysts predict more room for tax cuts.
In a speech at the World Economic Forum in Davos, Jeremy Hunt, the Chancellor of the Exchequer, insinuated cutting taxes. Lower-than-expected borrowing in December 2023 (£8.4 billion less than last year) has fueled speculation that the Chancellor will announce tax cuts in the upcoming March budget, potentially before the year-end general election. This is further supported by the significant drop in government debt interest payments (£14.1 billion decrease).
Larger Measures To Be Implemented Following the Tax Cuts
Economists like Ruth Gregory of Capital Economics expect tax cuts from the Chancellor. Measures include freezing fuel duty in the upcoming April 2024, which would cost about £6 billion a year, and lowering income tax by 1 penny (per pound sterling), costing around £6.9 billion annually. However, they warn that responsible spending is still essential, even with more money available.
Why The Debt Racked
Martin Beck, Chief Economic Adviser to the EY Item Club, predicts interest rate adjustments could go up to £10 billion in annual savings on debt interest payments, creating financial space for potential tax breaks. The UK’s total debt reaches close to 98% of the country’s GDP, as last seen in the early 1960s. The increase in borrowing is mainly due to pandemic support measures and recent energy bill subsidies. According to Beck, he anticipates several “high-profile tax cuts” in the future Budget. This could offer relief to taxpayers and businesses — despite concerns over the growing national debt (which now stood at £2.67 trillion at the end of December).
Balancing The Budget For The Future
Laura Trott, Chief Secretary to the Treasury, spoke in defence of the high national debt in the face of potential tax cuts. Trott acknowledged the “economic challenges” created by pandemic relief and energy subsidies, stating they were necessary to “protect millions of lives and livelihoods.” However, she emphasized the government’s long-term responsibility, stressing that the debts incurred “must be paid back so future generations are not left to pick up the tab.”
What The Opposition Had To Say
Labour’s Darren Jones highlights the record-high national debt. According to him, the number has doubled since 2010 under Conservative rule. He denounced the current government’s “low-growth, high-tax” approach, blaming it for making the situation for working people.
Additionally, Sarah Olney from the Liberal Democrats’ stance on this matter was calling out the Conservative ministers for “crashing the economy” and causing the public to have increasing debt and taxes on their plates. The opposition voices its criticism of the government’s economic strategy as a response to the recent figures and potential tax cuts.
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