Jeremy Hunt has shelved plans for a 2p cut to income tax at next month’s Budget as it was revealed the economy has entered a recession.
The Chancellor had been considering reducing the basic rate of income tax from 20 to 18 per cent. He had also considered reducing National Insurance employee contributions by two percentage points as an alternative.
However, the Office for National Statistics announced on Thursday that the economy had contracted 0.3 per cent in the last three months of 2023.
The ONS’s chief economist said that worklessness in Britain had contributed to weaker growth than other countries. There are 9.25 million people classed as economically inactive.
New forecasts showing the high costs of servicing government debt mean that Mr Hunt has less money to spend than expected. The Telegraph reports he has therefore deemed both moves unaffordable for now.
A Treasury source told The Telegraph: “The world has changed. Everything you thought was going to happen [at the Budget] may not now happen.”
Rachel Reeves, Labour’s shadow chancellor, called a press conference and declared the slump “Rishi’s recession”, noting the economy was smaller now then when the Prime Minister took office in October 2022.
She said voters would repeatedly be asked by Labour “do you and your family feel better off after 14 years of Conservative Government?” in the run-up to the general election, which is expected in the autumn.