LONDON (AP) — Britain’s Conservative government sought to regain the political initiative Wednesday with a series of tax cuts for businesses and individuals that it hopes will bolster its chances in a national election next year that opinion polls suggest it will lose.
Treasury chief Jeremy Hunt said the British economy “had turned a corner,” allowing him to offer what he termed the biggest set of tax cuts since the 1980s.
Prime Minister Rishi Sunak’s government is desperately searching for an economic feelgood factor to boost Conservative election fortunes. But with public finances still stretched by historical standards, economic growth muted at best and inflation still more than double the Bank of England’s target rate of 2%, experts have warned that the government hasn’t got much room for further big giveaways in the run-up to the next election.
The most high-profile measure in Hunt’s autumn budget statement was a cut to national insurance — a tax that employees pay — by 2 percentage points to 10%, with 27 million individuals expected to see the reduction as soon as January.
Though the British economy avoided the recession that many had anticipated this year, the country’s growth rates for upcoming years have been downgraded by the independent Office for Budget Responsibility.
Citing its forecasts, Hunt said the British economy is set to grow 0.6% this year, better than the March forecast of a 0.2% contraction. Next year, the economy is expected to grow 0.7%, much lower than the 1.8% expected. In 2025, growth has gone from 2.5% to 1.4%.
That means the election will be fought amid fairly anemic growth. The election must be held by January 2025, with speculation focusing on May or sometime next fall.
Opinion polls for months have put the governing Conservative Party, which has been in power since 2010, well behind the main opposition Labour Party and headed for likely defeat.
To bolster economic growth in ensuing years, Hunt said the British economy needed to be more productive. As such, he said 110 budget measures outlined Wednesday on such things as skills, housing and planning will “unlock” 20 billion pounds ($25 billion) worth of investment and boost productivity.
His biggest measure for business was to make permanent full expensing of capital investment, which allows firms to offset their spending on plant and machinery against profits.
“That is the biggest ever boost for business investment in modern times, a decisive step towards closing the productivity gap with other major economies, and the most effective way we can raise wages and living standards for every family in the country,” Hunt said.
Despite the tax cuts, the tax burden in the U.K. remains near its highest level in 70 years in the wake of the COVID-19 pandemic, the energy price spike triggered by Russia’s invasion of Ukraine and the aftermath of last year’s short-lived premiership of Liz Truss. Her leadership foundered after a series of unfunded tax cuts roiled financial markets and sent borrowing costs surging.
Prime Minister Rishi Sunak succeeded Truss in October 2022 on a pledge to stabilize the British economy after the turmoil.