Chancellor Jeremy Hunt aims to attract more investment to Britain during his Davos visit, emphasising the significance of lower taxes for economic growth…reports Asian Lite News
UK Chancellor Jeremy Hunt has hinted at an inclination to reduce taxes in the upcoming spring budget. Speaking to the BBC at the World Economic Forum in Davos, Switzerland, Hunt emphasised the positive correlation between lower taxes and dynamic, faster-growing economies. In the previous autumn statement, he had already reduced national insurance for workers by 2% and announced tax relief for businesses.
The chancellor expressed the possibility of further tax cuts if inflation decreases this year, coupled with lower interest rates, providing fiscal headroom. Hunt aims to attract more investment to Britain during his Davos visit, emphasising the significance of lower taxes for economic growth.
Observing the direction of economic growth in North America and Asia, Hunt believes that low-tax economies are more competitive and generate increased revenue for public services like the NHS. While not providing specific details on the scale of potential tax cuts, he awaits an assessment from the Office for Budget Responsibility (OBR).
The focus of the budget on March 6 is expected to be on income tax, as the overall tax burden is set to rise to its highest level in decades. Frozen tax thresholds since 2021, remaining unchanged until 2028, contribute to households being pushed into higher income tax brackets. Typically, tax thresholds rise with inflation, but the current freeze has sparked anticipation for adjustments in the upcoming budget.
Inflation Rose in December
The UK’s consumer price index (CPI) rose by 4 per cent in the 12 months to December 2023, up from 3.9 per cent in November, according to official data. This was the first inflation increase since February 2023, said the Office for National Statistics (ONS).
Meanwhile, Chancellor Hunt said he was “confident” that inflation will continue to fall and that prices were “heading in the right direction”. He told reporters on Thursday: “I think it’s coming down. I think it will continue to fall.”
The ONS said that CPI rose by 0.4 per cent monthly in December, reports Xinhua news agency. “The rate of inflation ticked up a little in December, with rises in tobacco prices due to recently introduced duty increases,” said Grant Fitzner, chief economist of the ONS. Prices in the alcohol and tobacco division rose by 12.8 pe cent in the year to December.
As announced in Autumn Statement 2023 in November, duty rates on tobacco products increased by retail price index (RPI) inflation plus 2 per cent, with duties on hand-rolling tobacco products increasing by RPI inflation plus 12 per cent.
The tobacco price rises “were offset partially by falling food inflation, where prices still rose but at a much lower rate than this time last year”, said Fitzner. “Meanwhile, the prices of goods leaving factories are little changed over the last few months, while the costs of raw materials remain lower than a year ago,” he added.
According to the ONS, food and non-alcoholic beverage prices rose by 8 per cent in December year-on-year, the lowest growth rate since April 2022. The latest data, significantly down from a peak of 11.1 per cent in October 2022, is still double the central bank’s 2 per cent target.
Economists are expecting the Bank of England to cut interest rate, which currently stands at a 15-year high of 5.25 per cent, at around the middle of this year.
However, the UK teeters on the edge of recession, evident in recent official growth figures revealing a contraction in the economy from July to September. A recession, commonly defined by two consecutive quarters of declining GDP, looms on the horizon.
Despite the economic challenges, Chancellor Hunt remains cautiously optimistic. While asserting that it’s premature to determine the scope of potential tax cuts, he pointed to the swift decline in inflation as a positive indicator for Britain’s improving economic outlook.