Could there be further tax cuts in the UK?

Chancellor Jeremy Hunt has hinted that we could see further tax cuts being announced during the Spring Budget on 6 March. Whilst speaking at the World Economic Forum in Switzerland, Hunt voiced his opinion that countries with lower taxes tend to have stronger economic growth:

“In terms of the direction of travel we look around the world and we note that the economies growing faster than us in North America and Asia tend to have lower taxes, and I believe fundamentally that low-tax economies are more dynamic, more competitive and generate more money for public services like the NHS.

“That’s the direction of travel we would like to go in but it is too early to say what we are going to do.”

So how likely are we to see further tax cuts being announced next month? And what could those cuts involve? There’s no clear answer, unfortunately, but let’s review what’s been discussed so far:

What tax cuts could we see?

In December, government borrowing dropped to £7.8 billion, and if inflation continues to fall as expected (which could lead to lower interest rates), it’s thought that the chancellor will have scope to make further tax cuts. But where could we see these cuts being made? That remains unclear whilst the government reviews the Office for Budget Responsibility (OBR)’s forecasts, although it’s predicted that Hunt will concentrate on Income Tax. 

Could new warnings put potential tax cuts in jeopardy?

The International Monetary Fund recently advised that additional tax cuts would be a mistake and could lead to extra borrowing or spending cuts further down the line. And it seems this stark warning has made the chancellor re-think his strategy slightly. In a BBC podcast, he expressed the need to manage people’s expectations: 

“It doesn’t look to me like we will have the same scope for cutting taxes in the Spring Budget that we had in the Autumn Statement. And so I need to set people’s expectations about the scale of what I’m doing, because people need to know that when a Conservative government cuts taxes, we will do so in a responsible and sensible way.”

A waiting game…

Whilst there seems to be a lot of uncertainty regarding whether we can expect further tax cuts at the next Spring Budget, it does sound like a scaled-down version of Hunt’s original plans could be on the cards. But, as we already know, anything can happen in the space of a few weeks, so unfortunately it’s likely to be a case of let’s wait and see…