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Tax cuts when councils on their knees?

By Jim Hancock

By Jim Hancock

Ahead of next week's Budget, Jim examines the pressure on the Chancellor for tax cuts, and the consequences if he carries them out.

Birmingham council taxpayers are facing a 20% increase over the next two years, one in ten councils say they may go bust in the next 12 months, massive cuts are underway on facilities that make life tolerable from toilets to leisure centres.

The generals are calling for defence spending increases in an increasingly dangerous world and the NHS is always in the market for more money.

And yet the pressure on the Chancellor to cut taxes in next week’s Budget remain intense. Right wingers argue that removing the highest level of taxes in decades, would incentivise entrepreneurs to grow the economy from which such public services would benefit….eventually.

That may be the case, but many believe the reasons for our sluggish growth has other causes like illness, Brexit and working from home.

The tax cut pressure is coming from Tory grassroots and some MPs who want to transform the Conservatives into a party believing in low taxes, a small state, and a very tough immigration policy. The Lee Anderson row and Liz Truss’ flirtations with American ultra-right politician Steve Bannon, shows there is little difference between these people and the Reform Party.

The pressure is also coming from more centrist Tory MPs who are growing increasingly desperate for something to move the polls which continue to show a 20% lead for Labour. The question is how will the voters react to tax cuts. Will they actually be won back to the Conservative fold, or have they already made their minds up on the two most powerful things that can lose government’s their hold on power? Do I feel better off and time for a change.

The International Monetary Fund has also warned against tax cuts and there is a risk of the markets taking an adverse view if the Chancellor strays outside his fiscal rules.

Nevertheless, the pressure is huge for tax cuts so let’s look at where Jeremy Hunt might make them.

The most obvious one is to scrap the scheduled 5p increase in fuel duty. One percent mortgages might be introduced to help first time buyers. A further cut in National Insurance can’t be ruled out although January’s reduction didn’t impress the voters in Wellingborough or Kingswood.

The huge cash cow for the Treasury is the freezing of income tax personal allowances. Any change here would have to be accompanied by the much forecast further squeeze on public services.

This will be a highly political budget. The Tories are desperate to attack Labour as high spenders. This approach forced Sir Keir Starmer off his £28bn green plan. Now there are suggestions the Chancellor might abolish non dom reliefs. Labour have pledged to do that to fund primary school breakfast clubs. It is one of the few spending pledges that Shadow Chancellor Rachael Reeves has allowed.

I doubt if Hunt will fully abolish it, it would look too clever by half. He might make it less generous, further restricting Labour’s ability to promise anything at all.

I am told by a range of friends and experts that Labour will have no choice but to promise to keep any tax cuts the Chancellor makes. Well, that will fuel the argument that they are all the same and will stir the left in the party who are largely behaving themselves at the moment.

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