Analysis-British tax cut spells trouble in store for next government

investing.com:

By William Schomberg

LONDON (Reuters) — British finance minister Jeremy Hunt's big tax cut surprise could help the ruling Conservatives recover some favour among voters, but it threatens to store up budget problems for whichever party wins power after the expected 2024 election.

Hunt was cheered by Conservatives in parliament on Wednesday when he said he would lower social security contributions for employees by a bigger-than-expected two percentage points, along with a smaller cut for self-employed workers.

Combined with his decision to make permanent the incentives for business investment announced earlier this year, Hunt's package of tax cuts would be worth about 20 billion pounds ($25 billion)a year by the 2028/29 tax year.

That represented Britain's biggest giveaway package since 1988, apart from the huge tax cut plans last year of former Prime Minister Liz Truss which hammered the bond market and were quickly dropped, the Resolution Foundation think tank said.

The size of Wednesday's cuts is dwarfed by the big tax increases rushed out by Hunt and Prime Minister Rishi Sunak a year ago as they moved to quell the storm unleashed by Truss.

Those rises still leave Britain on course for its highest tax burden since World War Two, something the opposition Labour Party's would-be finance minister Rachel Reeves called the fruit of «13 years of Conservative economic failure».

Labour has a roughly 20-point lead in opinion polls, with an election likely to be called in the next 12 months.

Leading think tanks said the design of Wednesday's measures taken on their own would benefit some lower earners and could improve Britain's low levels of business investment which are a factor in holding the economy in its slow-growth mode.

B