Jeremy Hunt says he will ‘bring taxes down when we can’ amid Budget backlash

Jeremy Hunt today dodged committing to tax cuts before the election amid a backlash at the burden reaching a new post-war high.

Defending his Budget in a round of interviews, the Chancellor merely insisted the government will ‘bring down taxes when we can’.

He also fended off criticism that the vaunted new childcare provision for under-threes will not be implemented fully for more than two years – saying ministers are moving as fast as they can.

Mr Hunt went into bat on the day after it was confirmed that millions of Britons will be dragged into paying more income tax, bringing in an extra £120billion in revenue for the Treasury over the next five years.

Tax thresholds have been frozen, meaning that even though wages are not rising enough to keep pace with the cost of living, many employees are still being pulled into higher bands. 

Meanwhile, Mr Hunt laid out a major cash injection for childcare as he scrambles to slash soaring levels of economic inactivity after Covid.

Most parents will get 30 hours free from when children are nine months old, instead of four, but the policy will be phased in – not taking full effect until September 2025. 

There is also a commitment for all schools to offer breakfast clubs and wraparound care, but that will not be implemented until September 2026.   

Defending his Budget in a round of interviews, Chancellor Jeremy Hunt merely insisted the government will ‘bring down taxes when we can’

The OBR assessment of the Budget revealed that households still face the worst squeeze since records began in the 1950s

The tax burden is on course to hit 37.7 per cent of GDP, the highest level since the Second World War, according to the Office for Budget Responsibility

Mr Hunt told Sky News that the government was going ‘as fast as we can’ on childcare.

‘This is the biggest transformation in childcare in my lifetime,’ he said.

‘It is a huge change and we are going to need thousands more nurseries, thousands more schools offering provision they don’t currently offer, thousands more childminders.

‘We are going as fast as we can to get the supply in the market to expand.

‘But it is the right thing to do because we have one of the most expensive childcare systems in the world and we know it is something that is a huge worry, for women in particular, that they have this cliff-edge when maternity leave ends after nine months, no help until the child turns three and that can often be career ending.

‘So I think it is the right thing to do for many women, to introduce these reforms and we are introducing them as quickly as we can because we want to remove those barriers to work.’

The tax burden is on course to hit 37.7 per cent of GDP, the highest level since the Second World War, according to the Office for Budget Responsibility.

That is also partly the result of the corporation tax rate going up in April from 19 to 25 per cent – despite calls from business leaders and Tory MPs to scrap the rise.

The ratio of corporation tax to GDP will rise to its highest level since it was introduced in 1965.

The forecast for the overall tax burden is even higher than the 37.1 per cent predicted in the OBR’s last forecast in November.

It means that in five years from now 3.2million previously not liable for income tax will be dragged into paying it, while nearly 2.5million will be pulled into higher brackets.

It comes after then-Chancellor Rishi Sunak announced in 2021 that income tax thresholds would be frozen up to and including the 2025-2026 financial year.

Under the ‘personal allowance’, anyone earning less than £12,570 does not have to pay income tax.

But the freeze means that if their wages climb above this – and even though inflation is eating into the value of those wages – they will become liable at a rate of 20 per cent. 

That will affect 3.2million over the next five years, creating 9 per cent more taxpayers, the OBR reckons. The 20 per cent rate applies on earnings of up to £50,270, and above that earnings are liable to be taxed at 40 per cent.

The OBR provided some wriggle room for the Chancellor with slightly better forecasts on the economy and inflation

It comes after then-Chancellor Rishi Sunak announced in 2021 that income tax thresholds would be frozen up to and including the 2025-2026 financial year

That threshold has also been frozen. It means 2.1million more taxpayers will be pulled into this bracket by 2028.

A third ‘additional rate’ threshold applies on incomes of just over £125,000 and above, taxing earnings at a rate of 45 per cent. The number of those liable to this rate will rise by 47 per cent or 350,000.

OBR analysis shows the freezes will add £12billion to the tax take over the 2023/24 financial year, rising to £29.3billion by 2027/28. It all adds up to an extra £120.4billion for the Treasury. The Budget forecast also shows borrowing for the current 2022/23 financial year will come in at £152.4billion, £24.7 billion less than forecast in November.

This is thanks to a better than expected economic picture and the falling cost of the Government’s energy price freeze – the result of lower global prices.

Yet Budget measures to keep down energy bills, support business investment and encourage more back to work mean he has already spent two-thirds of the windfall from the improved fiscal outlook, the OBR said.

It means that while Mr Hunt is on course to meet the Government’s target to see debt as a percentage of GDP falling in five years’ time, that is ‘by only the narrowest of margins’, the OBR said. And that will only be after debt hits its highest level in more than 50 years.

The expected ‘headroom’ of £6.5 billion will be the lowest for any Chancellor since the watchdog was established in 2010

The expected ‘headroom’ of £6.5 billion will be the lowest for any Chancellor since the watchdog was established in 2010.

Debt interest spending is on course to hit £114.7 billion, or 11.2 per cent of GDP, in 2022/23, its highest level since just after the Second World War.

That is because the interest paid on much of the Government’s debt is linked to inflation, which has been soaring.

Tory backbencher Simon Clarke, a former chief treasury secretary, told LBC the danger of the tax burden reaching its highest level since the war ‘isn’t a sustainable position. It isn’t good for growth.’

Paul Johnson, director of the Institute for Fiscal Studies, said: ‘The Government remains on track to meet its relatively loose fiscal targets by only the barest of margins, despite a historically high tax burden and some extremely tight post-election numbers for spending on public services.

‘We are still in the midst of an enormously difficult period for households. We’re by no means out of the woods yet.’