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Vanessa Feltz 3pm - 6pm
23 November 2023, 08:11 | Updated: 23 November 2023, 09:31
Chancellor Jeremy Hunt has told LBC the reductions to national insurance announced yesterday were an important first "step" in reducing the personal tax burden for millions of workers.
Mr Hunt announced a two percentage point cut to national insurance in yesterday's autumn statement, saving the average worker around £450 a year.
But critics have said that previous tax changes mean many households won't be much better off.
Mr Hunt told LBC the measure is intended to benefit the whole economy.
He told Nick Ferrari this morning: "I didn't choose crowd pleasing tax cuts.
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"National insurance - why does that help? Because if you cut taxes on work, more people go into work, and the OBR say that about 100,000 more jobs or the equivalent of, will be created in the economy because of that cut from12% to 10%."
He said the national insurance cut will be brought forward from April to take effect in January because "I want to bring help for families as soon as possible" as energy bills continue to rise.
Mr Hunt also insisted he has not discussed the timing of the general election with Rishi Sunak, but did not rule out an early spring Budget.
"I can confirm regarding the date of the election that I've had absolutely no discussions with the Prime Minister," the Chancellor said.
Asked if he could rule out February as the date for the next budget, the senior Tory said: "I can't rule out anything because I haven't taken any decisions.
"Normally it's in March, but we will make a decision at the appropriate time."
He said he didn't think people should be parked on benefits for life.
"We increased benefits yesterday by double the next year's predicted inflation. But we do also say if you're on benefits and you don't have a sickness or a disability, you should be looking for work.
"If you have mental health difficulties, we think the default should be to treat those mental health issues, not to park you on benefits for the rest of your life without any help with getting into work."
Shadow chancellor Rachel Reeves told LBC people "can't carry on" with the rising tax burden.
She said yesterday's national insurance cut doesn't "remotely compensate" for changes made over the last five years.
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Other critics said the Chancellor's tax giveaway in the Autumn Statement is based on "implausible" plans to cut public spending and will not prevent this from being the "biggest tax raising" parliament in recent times.
The Chancellor used his Commons statement on Wednesday to begin to ease the historically high tax burden and announce tighter welfare rules and further measures aimed at getting more people into work.
Mr Hunt said a stronger outlook for the public finances meant he could slash the 12% national insurance rate to 10% and offer firms incentives to increase investment.
But the Office for Budget Responsibility's predictions painted a picture of anaemic growth for the next three years.
Paul Johnson, director of the independent research body the Institute for Fiscal Studies (IFS), noted that public finances have not meaningfully improved, the growth outlook has weakened and inflation is staying higher for longer.
That means tax revenue for the Exchequer will continue to rise as ongoing freezes to income tax thresholds mean more people with growing earnings are pushed into paying tax.
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Mr Hunt could have used the proceeds to ease the ongoing "fiscal drag" or compensate public services for higher costs, Mr Johnson said, but opted for the tax reductions instead.
"These tax cuts won't be enough to prevent this from being the biggest tax-raising parliament in modern times," he said.
The Resolution Foundation said the £10 billion of personal tax cuts are far lower than the £45 billion of already announced national insurance and income tax rises.
The think tank said households will on average be £1,200 worse off overall because of the changes announced in this parliament.
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Chief executive Torsten Bell said: "The truth is, taxes are up not down. Today's cuts are dwarfed by tax rises already underway. By the end of this decade, taxes are set to be up by the equivalent of £4,300 per household compared to 2019."
Both organisations pointed out that Government departments - which have seen real spending eroded by higher inflation - are set to face a major spending squeeze under Mr Hunt's plans.
Mr Bell said: "Worse, the giveaways announced today are funded by handing whoever wins the next election implausibly large spending cuts. Tax cuts to boost business investment are welcome, but undermined by plans to cut public investment by over a third - it's hard to think of a more anti-growth policy."
Mr Johnson said: "These tax cuts have been 'paid for', in effect, by a bigger squeeze on the real-terms value of public service budgets and an even bigger squeeze on public investment, which is frozen in cash terms. There's a material risk that those plans prove undeliverable and today's tax cuts will not prove to be sustainable."
Ian Mulheirn, an economist at the Resolution Foundation, was even blunter in his assessment.
He wrote on social media site X: "OBR draws out completely implausible implications - real terms cuts of 2.3-4.1%/yr after 2025 for unprotected departments.
"What's the plan here? Abolish the criminal justice system and public transport maybe?
"This should be the debate, not 'have they really cut taxes?'"
Meanwhile, the Institute for Public Policy Research (IPPR) said the cuts to national insurance contributions largely benefit the best-off households.
The IPPR also said London and the South East of England will see the biggest gain from the reductions with an average annual gain per working-age person of £316 and £290, while those in the North East, Yorkshire and the Humber, and Wales see the smallest benefit, with average gains of £192, £214, and £211, respectively.
Henry Parkes, principal economist and head of quantitative research at IPPR, said: "There are many reasons why now is not the time for tax cuts; but even less so when the principal beneficiaries of today's changes will be the best off households, rather than those worst hit by the continuing cost-of-living crisis. They also disproportionately benefit the richest areas of the country most - the opposite of levelling up.
"More broadly these tax cuts are accompanied by plans to make deep cuts in public services and investment in the future - an approach that commands very little support from the public and will make it harder, not easier, for the UK economy to grow as it needs to."