Jeremy Hunt is preparing to use next week’s budget to launch a duty on vaping alongside tax cuts for workers before a general election.
The chancellor is expected to announce a “vaping products levy” charged on manufacturers and importers of the liquid in vapes, Treasury sources said. It is anticipated the costs would be passed on to consumers with the hope that it would make the habit unaffordable for children.
With the government under mounting pressure over its economic record, Hunt is widely expected to use his 6 March speech to the Commons to announce a package of tax giveaways before an election anticipated later this year.
However, the Institute for Fiscal Studies said on Tuesday that Hunt’s financial planning was “dubious” and “lacks credibility,” as it warned him against announcing tax cuts if he cannot lay out how he will fund them.
The two main tax cuts in consideration are believed to be a one percentage point reduction in employee national insurance, at a cost to the Treasury of about £4.5bn a year, and an extension of a cut in fuel duty at a cost of about £1bn a year, according to the Times.
Sources close to the chancellor said decisions were yet to be made as the Treasury awaited updated forecasts for the economy and the public finances from the Office for Budget Responsibility, due on Friday, including on whether a reduction in national insurance would be prioritised over a costlier cut to income tax.
The figures from the OBR will determine the headroom Hunt has within a self-imposed target for government debt to be falling as a share of the economy by the fifth year of the forecast.
It is understood the most recent figures shared with the Treasury last week show Hunt has just under £13bn to spare before taking any new tax or spending decisions, as the public finances come under pressure from inflation falling by more than expected and higher interest rates.
Next week’s budget is therefore expected to be far more limited than last year’s autumn statement, the sources said. Hunt had in excess of £30bn before taking any decisions in last November’s fiscal event, which included a 2p cut in national insurance and tax relief on investments for businesses.
One option to give the chancellor more room for giveaways would be to impose tighter restraints on public spending. However, the IFS calculates that Hunt would need to find £35bn of cuts from already threadbare public services if he plans to use a Whitehall spending freeze to pay for pre-election giveaways.
The chancellor has shelved plans to cut stamp duty and inheritance tax, but will reconsider these options for an autumn statement or for the Conservative party’s election manifesto, the Times reported.
The plans for a new levy on the liquid in vapes comes after ministers launched a consultation last year on “creating a smoke-free generation” while tackling a surge in the use of vapes by children.
The tax would be similar to 15 schemes in European countries, including Germany, where a €1.60 (£1.37) tax is charged on every 10ml of vape liquid, and Italy where the rate is €1.30. The EU is also planning a vaping levy across the 27-nation bloc.
The new tax in the UK would charge higher rates for products with more nicotine. There would also be a one-off increase in tobacco duty to ensure that vaping remains a cheaper alternative, with the two measures expected to raise more than £500m a year by 2028-29, according to the Times.
It comes after Rishi Sunak’s plan to ban smoking for the next generation by steadily increasing the legal smoking age in England so that tobacco would end up never being sold to anyone born on or after 1 January 2009.
