Monday, July 15, 2024

With a general election at most 14 months away, the British government said on Wednesday that it will cut taxes for millions of workers starting early next year. Jeremy Hunt, Britain’s top financial official, announced a slew of measures intended to jolt the nation’s stagnant economy by encouraging corporate investment and pushing more people into the workforce. At the same time, his political party, the Conservatives, hopes that the tax giveaways will improve its electoral chances, as it languishes 20 points behind the opposition Labour Party in the polls.

National insurance, a tax paid by employers and workers that funds state pensions and some benefits, will be cut by 2 percentage points to 10 percent for employees, Mr. Hunt said, saving an average employee about 450 pounds ($560) next year. This tax is separate from other income taxes, which were not changed. The government will also expand tax breaks for business investment and reduce taxes for the self-employed, Mr. Hunt said. In total, the measures introduced on Wednesday would increase business investment by £20 billion a year, he said. Because of that squeeze on spending, “there’s a material risk that those plans prove undeliverable and today’s tax cuts will not prove to be sustainable,” Paul Johnson, the director of the Institute for Fiscal Studies, said in a statement. Earlier this week, Mr. Sunak signaled a switch in emphasis, saying that he had made “difficult decisions” on inflation, such as resisting big pay raises for striking public sector workers. “Now you can trust me when I say we can start to responsibly cut taxes,” he said. While the cut to national insurance might generate some positive headlines, few people are likely to feel much better off. That’s because a freeze on the thresholds for different income tax brackets, announced by Mr. Sunak when he was chancellor, has meant people pay more taxes as their wages have risen in the recent high inflation period. The cut to national insurance offsets only about a quarter of the increase in tax burden generated by the frozen income tax thresholds, the Office for Budget Responsibility said on Wednesday. And so, British tax revenues are expected to rise to 38 percent of gross domestic product, the highest tax burden since World War II, the watchdog said.

Several of Mr. Hunt’s measures targeted some of the most intractable issues holding back the British economy. He aims to spur more business investment by making tax breaks for capital spending permanent. Previously, companies could write off 100 percent of their investments only until 2026. The measure means companies get £250,000 off their tax bill for every £1 million invested. It is expected to cost the government about £9 billion a year.

Although the government has been accused of falling behind on funding its commitment to cut greenhouse gas emissions and insufficiently supporting infrastructure building, Mr. Hunt announced plans to accelerate investment in clean energy and the green transition. He said he would take steps to speed up planning applications, connecting to the electricity grid and providing compensation for people living near new pylons and electricity substations. Mr. Hunt also said £4.5 billion would be steered toward the manufacturing sector, particularly for clean energy and automotive, aerospace and the life sciences industry. But the funding would not be available until after 2025, or after the next election. Before Wednesday’s statement, the Treasury had announced some measures to get more people into work.

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