UK: Conservatives issue tax cuts as election looms

Britain's Chancellor of the Exchequer (or finance minister) Jeremy Hunt on Wednesday announced a larger than expected cut in social security contributions and said new business incentives would be made permanent in a bid to accelerate sluggish economic growth. 

Hunt, who is seeking to boost the fortunes of Prime Minister Rishi Sunak's Conservative Party ahead of a probable election next year, also said welfare payments and the state pension would be increased. 

Nevertheless, he told the House of the Commons parliament that the government was still set to meet its public finance targets, and said the country's fiscal watchdog concurred on this point. 

"After a global pandemic and energy crisis, we have taken difficult decisions to put our economy back on track," Hunt said. "Rather than a recession, the economy has grown. Rather than falling as predicted, real incomes have risen. Our plan for the British economy is working. But the work is not done." 

Hunt also said the UK's economy was now forecast to grow by 0.6% this year, rather than shrink by 0.2% as previously predicted. However, predictions for 2024 economic performance were simultaneously revised downwards, to 0.7% growth from a previous estimate of 1.8%.

What new measures were announced? 

Hunt said he was cutting the rate of national insurance — a form of social security — paid by employees by 2% to 10%, as well as a smaller cut for self-employed workers.

The main change in business taxation will affect a tax break known as "full expensing." 

This is a capital allowance scheme that allows companies to deduct the costs of necessary plant and machinery from their taxable profits. It's designed to encourage and boost new business investment in the country, which has flatlined since the 2016 vote to leave the EU, even as it increased in other G7 countries over the same period.

Hunt said that it cost the British government in the region of 11 billion pounds (roughly €12.6 billion or $13.7 billion) a year, and was due to expire in 2026, but said it could now be made permanent thanks to improved public finances. 

Following in wake of budget that buried Liz Truss

Jeremy Hunt and Prime Minister Rishi Sunak both came into their roles last year, having to overturn and undo the raft of proposed tax cuts and economic reforms that swiftly turned Sunak's predecessor Liz Truss into Britain's shortest-serving prime minster. 

Truss announced sweeping changes, including abolishing the country's top rate of tax for the highest earners, without submitting them for analysis by the Office for Budgetary Responsibility (OBR) — the country's fiscal watchdog that did screen Hunt's announcements on Wednesday. 

Amid a cocktail of post-Brexit malaise, the aftereffects of the COVID pandemic, and spiking inflation and energy costs caused in large part by Russia's invasion of Ukraine, the move spooked investors who began to flee from their British holdings. 

This forced Truss first to U-turn and appoint Hunt as a new finance minister to undo her work, and then to resign altogether after trying to cling on a little longer. 

Sunak, himself a former finance minister, then emerged as the next prime minister — the fourth Conservative leader in as many years.

Elections probable next year, Labour dominating polls

He and Hunt had since sought to portray themselves as more fiscally responsible, in favor of tax cuts in principle but only willing to deliver them after steadying the ship following several difficult years for the global economy in general and Britain's in particular. 

Now, with elections probable next year and the Conservatives trailing the opposition Labour Party by as much as 20% in some polls, the government is seeking to show its fiscal policies are turning a corner. 

Sunak and Hunt, considered more centrist Conservatives, might also have felt pressure to try to mend fences with the right flank of the Conservative Party since last week's sacking of former Home Secretary (or interior minister) Suella Braverman. 

The low-tax wing of the Tory Party was, including Truss herself, was out in force on Wednesday both welcoming the cuts, and calling for more. 

msh/jcg (AP, dpa, Reuters)