Seeing more ‘headroom’ to wiggle for tax cuts, Chancellor Jeremy Hunt is set on giving ‘crowd-pleasing measures’ before the general election, which may potentially allot a 1 per cent reduction in income tax. Whilst some economists support this plan, the International Monetary Fund (IMF) issued a stern warning against it, questioning the feasibility of anticipated tax cuts without additional borrowing or post-election spending reductions.
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Whilst Hunt is expected to reduce income tax in the March Budget, the IMF recommends increasing carbon and property taxes, addressing loopholes in wealth and income taxation, and revising the pensions triple lock. The IMF suggests that the focus should be on preserving high-quality public services, making crucial public investments to boost growth, and achieving net-zero targets.
The IMF highlights the need to be cautious against unnecessary tax cuts to avoid jeopardising growth and falling below inflation targets. It acknowledges both upsides and downsides, including geopolitical tensions and potential over-optimism about interest rate cuts, prioritising key areas of public spending to repair the economic damage caused by the pandemic and the Ukraine conflict.
The Institute for Fiscal Studies (IFS), on the other hand, suggests postponing tax cuts until there is more certainty about reducing debt and understanding the impact of planned spending cuts.
Despite the IMF’s forecast of slow UK economic growth, Chancellor Hunt and Prime Minister Rishi Sunak reject these precautions and continue to hint at tax giveaways in the upcoming budget, citing expectations of strengthened growth in the coming years.
Whether the tax cut will happen or not, stay tuned with Legend Financial for further updates. For more UK tax and business news, subscribe to our newsletter today! Our team of tax accountants are also available hands on for your tax, accounting, and business development needs. Reach us today!
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Reference:
IMF warns Jeremy Hunt against tax cuts in budget. (30 January 2024). Retrieved from The Guardian: https://www.theguardian.com/business/2024/jan/30/imf-says-global-economy-heading-for-soft-landing-after-coping-with-inflation
IMF warns UK government against further tax cuts. (31 January 2024). Retrieved from BBC News: https://www.bbc.com/news/business-68140634
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Sharp Fall in Government Debt May Mean More Room for Tax Cuts. (29 January 2024). Retrieved from Legend Financial: https://legendfinancial.co.uk/news/government-debt-may-mean-more-room/
