Cash-strapped Britain cuts taxes for workers as election looms

Hunt cut national insurance — a levy paid by people who work — by 2 percentage points. That means an additional £450 ($572) a year for the average employee or £350 for someone who is self-employed.

Soaring government debt, crumbling public services and a lackluster economy left the chancellor with very little room for further substantial giveaways.

The UK economy barely grew in 2023, slipping into recession at the end of the year in stark contrast with Prime Minister Rishi Sunak’s pledge to generate economic growth. In 2024, the Bank of England sees output expanding just 0.25%, while the International Monetary Fund has forecast growth of 0.6%.

Despite that gloomy backdrop, Hunt delivered an upbeat assessment of Britain’s economic prospects and the outlook for household finances.

“We can now help families… with permanent cuts in taxation,” he said. “Conservatives know lower tax means higher growth. And higher growth means more opportunity, more prosperity and more funding for our precious public services.”

Hunt’s Conservative Party is trailing the opposition Labour Party with a wide margin in opinion polls, which had put him under enormous pressure to unveil tax cuts — however small — in a last-ditch bid to win voters.

But modest reductions to income or payroll taxes are unlikely to change the fact that Britain’s overall tax burden remains at a post-war high and living standards have fallen. Economic output per person is still lower than it was at the end of 2019, having not recovered fully from a sharp fall during the pandemic, according to the Office for National Statistics.

Meanwhile, UK government debt has surged by more than 40% since 2020, as the state spent big to cushion households and businesses from the impact of Covid-19 lockdowns and soaring energy costs following Russia’s full-scale invasion of Ukraine.

At the end of January, public sector debt surpassed £2.6 trillion ($3.3 trillion), according to the ONS, a level not seen since the early 1960s and almost the same size as the nation’s annual gross domestic product. Elevated interest rates are piling on the pain.

The cost of servicing that growing debt pile is siphoning ever greater amounts of money away from vital public services, which have already been squeezed by inflation and past budget cuts.

Several local authorities have recently declared themselves bankrupt — including Britain’s second-biggest city, Birmingham, which on Tuesday approved plans to slash local services and dim street lights as it tries to balance the books. The Local Government Association warned in December that councils in England face a £4 billion ($5.1 billion) funding gap this year and next.

Other so-called “unprotected” areas of the national budget, such as social care and the police force, are also at risk. Spending on defense, schools, the National Health Service and overseas aid has been ringfenced for now.

The government’s current plans for public spending look “implausible,” economists at Capital Economics wrote in a note last month, pointing to considerable cuts to unprotected spending penciled in from next year.

“That seems unlikely when public services are creaking,” they added. “Whoever wins the election will probably need to admit both taxes and spending will need to be raised.”

Capital Economics is not alone in suggesting that the government has played fast and loose when talking about its spending plans. Its own fiscal watchdog, the Office for Budget Responsibility, made a similar point recently.

OBR chair Richard Hughes said in January that the government had provided no detailed breakdown of departmental spending plans beyond March next year, giving only headline figures.

“Some people have referred to that as a work of fiction,” Hughes said.

“That is probably generous, given that someone has bothered to write a work of fiction, whereas the government have not even bothered to write down their departmental spending plans underpinning their plans for public services,” he added.

And slashing future spending on public services to pay for tax cuts now could backfire. In a survey last month of nearly 2,000 British adults by Deltapoll and the Tony Blair Institute, 52% said the government should invest any extra money it has to improve the quality and efficiency of public services. Only 11% thought the money should be used to cut taxes.

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