Following the comment piece yesterday from the Institute of Fiscal Studies, entitled ‘New tax year gives Chancellor more ‘headroom’ but doesn’t change the fundamentals’ reminds us that with the dawning of the new 2024/2025 tax year brings a change in the parameters for the Chancellor and his capacity for change through an improvement in ‘fiscal headroom’ – giving scope for possible tax cuts or further cuts to NICs – ahead of the next general election.
Commenting on the latest updates, Julia Cox, Partner at Charles Russell Speechlys said “Chancellor Jeremy Hunt’s recent hints at possible further tax cuts ahead of the upcoming general election may well reflect a strategic move to boost the Conservative party’s prospects amidst trailing polls. With recent cuts to National Insurance and possible reductions in Bank of England rates, this is clearly an effort to enhance public perception of economic recovery.
“However, it is crucial to approach these potential tax reductions with caution. The Chancellor himself emphasises a commitment to fiscal responsibility, making it clear that any tax adjustments will not compromise the UK’s financial health or public services funding. This stance is key as we navigate through a period where the IMF warns against expansive fiscal policies, urging restraint in public borrowing to safeguard against future downturns.
“While the Conservative approach looks to stimulate growth through lower taxes, aligning with faster-growing economies globally, Labour maintains a conservative stance re not increasing taxes. This underscores a fundamental divide in fiscal policy perspectives between the two major parties.
“For businesses and individual taxpayers, these developments suggest a need for vigilant planning and strategic consideration. The landscape of UK taxation is dynamic, with significant implications for long-term financial strategy and immediate fiscal responsibilities. Understanding these (prospective) changes and preparing for their impact is essential.“
Also commenting on what the Chancellor might be aiming for, Victoria Price, Managing Director at Alvarez & Marsal and leader of the Private Capital Team, commented:
“With a general election looming, the Chancellor has little choice but to introduce the possibility of further tax cuts under a Conservative government. With taxes currently at the highest sustained level on record— accounting for 37% of GDP—and the Labour Party advocating for closing tax loopholes to fund NHS improvements and increase public spending, tax policy is poised to be a defining issue in the manifestos of both major parties.”
