Jeremy Hunt set to cut national insurance by two percentage points at budget
Jeremy Hunt is set to cut national insurance by a further two percentage points in Wednesday’s budget, as he looks to give a tax break to working people.
Amid much discussion between income tax and national insurance cuts, Jeremy Hunt looks to be prioritising a tax cut for an average of 27 million workers as he builds on the two percentage point national insurance cut that came in this year.
In total, the chancellor will be able to say he is cutting taxes by an average of £900 this year.
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Many Conservative MPs want the chancellor to cut income tax by two percentage points in the March budget as a more headline-grabbing decision that benefits more voters, including pensioners, but Treasury insiders said the chancellor has leaned in towards a national insurance cut because it applies across the UK – Scotland sets its own income tax thresholds – and is designed to “make work pay”.
Government figures have been playing down a big tax-cutting budget, arguing that various tax cuts – be it around inheritance tax or stamp duty – have fallen away because of deteriorating economic forecasts, which has limited his scope.
Recent Office for Budget Responsibility forecasts have given the chancellor £13bn of headroom, against his fiscal rule to have debt falling as a share of gross domestic product in five years’ time.
The chancellor’s decision to cut national insurance by two percentage points will cost around £10bn.
With limited headroom, Mr Hunt will also need revenue raisers in Wednesday’s budget and is considering taking Labour’s plan to limit tax breaks for foreign domiciled nationals living in the UK – Labour were looking at raising £2bn in tax from this.
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A new levy on vaping is on the cards, as is tax on air passenger duty for business class travel and tax breaks for those who rent out second homes for holiday lets.
The chancellor is also considering cutting back plans to increase departmental spending by just 0.75% a year, instead of 2% to raise around £5bn.
However, many Conservative MPs eyeing the huge gulf in the polls want the chancellor to go further on tax cuts.
Dame Priti Patel, former cabinet minister, said she and many colleagues now wanted movement on income tax.
“We’ve had national insurance cuts already, we had one in the Autumn Statement, that is why I think the best way forward would be to balance that out with an income tax cut,” she said, calling on the chancellor to deliver a two percentage points income tax cut.
“You’ve seen the numbers, more and more people, up to four million more people will be dragged into paying higher rates of taxation because those thresholds haven’t changed by 2029. And I think we need to do something about that.”
However, the insiders are playing the prospect of bigger tax cuts beyond national insurance down, insisting that his room of manoeuvrability is limited. Mr Hunt’s approach is likely to be consistent with the last three fiscal events, in which he prioritised economic growth, workers and cutting inflation.
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Despite all the briefings in the past few days, Labour is planning on the basis that the chancellor will do something on income tax, with the opposition party working on the basis that his headroom is bigger than billed – it has pencilled in £25bn – and the chancellor could afford to do both.
Analysis done internally by Labour shows that even with 3p in income tax people are still worse off because the threshold increases – with people’s pay going up dragging them into higher tax bands and council tax increases, according to one figure.
Fears of a US-EU trade war have been reignited after Europe refused to back down in the face of fresh threats from Donald Trump.
The word tariff has dominated much of the US president’s second term, and he has repeatedly and freely threatened countries with them.
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This included the so-called “liberation day” last month, where he unleashed tariffs on many of his trade partners.
On Friday, after a period of relative calm which has included striking a deal with the UK, he threatened to impose a 50% tariff on the EU after claiming trade talks with Brussels were “going nowhere”.
The US president has repeatedly taken issue with the EU, going as far as to claim it was created to rip the US off.
However, in the face of the latest hostile rhetoric from Mr Trump’s social media account, the European Commission – which oversees trade for the 27-country bloc – has refused to back down.
EU trade chief Maros Sefcovic said: “EU-US trade is unmatched and must be guided by mutual respect, not threats.
“We stand ready to defend our interests.”
Donald Trump speaks to reporters in the Oval Office on Friday
Fellow EU leaders and ministers have also held the line after Mr Trump’s comments.
Polish deputy economy minister Michal Baranowski said the tariffs appeared to be a negotiating ploy, with Dutch deputy prime minister Dick Schoof said tariffs “can go up and down”.
French trade minister Laurent Saint-Martin said the latest threats did nothing to help trade talks.
He stressed “de-escalation” was one of the EU’s main aims but warned: “We are ready to respond.”
Mr Sefcovic spoke with US trade representative Jamieson Greer and commerce secretary Howard Lutnick after Mr Trump’s comments.
Mr Trump has previously backed down on a tit-for-tat trade war with China, which saw tariffs soar above 100%.
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Sticking points
Talks between the US and EU have stumbled.
In the past week, Washington sent a list of demands to Brussels – including adopting US food safety standards and removing national digital services taxes, people familiar with the talks told Reuters news agency.
In response, the EU reportedly offered a mutually beneficial deal that could include the bloc potentially buying more liquefied natural gas and soybeans from the US, as well as cooperation on issues such as steel overcapacity, which both sides blame on China.
Stocks tumble as Trump grumbles
Major stock indices tumbled after Mr Trump’s comments, which came as he also threatened to slap US tech giant Apple with a 25% tariff.
The president is adamant that he wants the company’s iPhones to be built in America.
The vast majority of its phones are made in China, and the company has also shifted some production to India.
Shares of Apple ended 3% lower and the dollar sank 1% versus the Japanese yen and the euro rose 0.8% against the dollar.
Donald Trump has threatened to impose a 50% tariff on the EU, starting from next month, after saying that trade talks with Brussels were “going nowhere”.
Mr Trump made the comments on his Truth Social platform.
It marks a fresh escalation in his trade row with the European Union, which he has previously accused of being created to rip off the US.
While the US has done deals with the UK and China to reduce their peak exposure to his trade war, the president’s EU threat, which would cover all EU imports to the US, would risk retaliatory measures from Brussels if carried through.
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Mr Trump said of talks between his administration and the EU: “Our discussions with them are going nowhere! “Therefore, I am recommending a straight 50% tariff on the European Union, starting on June 1, 2025. There is no tariff if the product is built or manufactured in the United States.”
The European Commission was yet to respond to the remarks. Officials signalled there would be no comment until after a call between top US-EU trade figures due later on Friday.
Financial markets, however, were quick to take a view. European stock markets were sharply down across the board.
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The FTSE 100 in London was more than 1.2% lower shortly after the Truth Social post appeared, while Germany’s DAX and the French CAC 40 were in the red to the tune of more than 2%.
US stock markets fell at the open on Wall Street. The tech-focused Nasdaq was down more than 1%.
The potential for damage to the global economy saw Brent crude oil sink by more than 1% to $63 a barrel.
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‘US is losing’ trade war
The dollar took a hit too, as the news only intensified existing market worries this week about the sustainability of US government debt levels.
The pound was trading at levels last seen in February 2022.
Mr Trump said earlier that Apple will be forced to pay 25% tariffs on its iPhones unless it moves all its manufacturing to the US.
Apple shares dropped more than 2% in premarket trading after the warning, also posted on Truth Social.
“I have long ago informed Tim Cook of Apple that I expect their iPhones that will be sold in the United States of America will be manufactured and built in the United States, not India, or any place else,” wrote the president.
“If that is not the case, a tariff of at least 25% must be paid by Apple to the US.”
Production of Apple’s flagship phone happens primarily in China and India, which has been an issue brought up repeatedly by Mr Trump.
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On Thursday, the Financial Times reported Apple was planning to expand its India supply chain through a key contractor.
Taiwanese company Foxconn is planning to build a new factory in the Indian state of Tamil Nadu, according to the paper, to help supply Apple.
Sky News has contacted Apple for comment.
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