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The Guardian - UK
The Guardian - UK
National
Kiran Stacey and Larry Elliott

Hunt scrambles to raise revenue as OBR slashes scope for tax cuts in budget

Jeremy Hunt pinching his thumb and index finger close together.
The chancellor has been left little room to make the tax cuts he had planned. Photograph: Hollie Adams/Reuters

Jeremy Hunt’s scope to make tax cuts in next week’s budget has been reduced further this week, according to Treasury insiders, leaving the chancellor considering emergency measures to raise revenue.

Recent forecasts from the Office for Budget Responsibility (OBR) are said to have given the chancellor less fiscal headroom than hoped, pushing him to consider unexpected tax rises such as abolishing the non-dom tax status.

Hunt received the most recent forecast this week and will get another on Friday clarifying how much he can spend on tax cuts while remaining on track to meet his debt-reduction target.

The chancellor is considering reducing spending forecasts after the election to help pay for his tax cuts now, despite warnings from economists that such plans would be unachievable. Sources said he had ruled out allocating more money to public services, despite polls suggesting that doing so could be more popular than cutting taxes.

Downing Street refused to comment on reports that Hunt was looking at copying Labour’s plan to scrap or curtail non-dom status, a move that could raise £3.6bn a year. A spokesperson said: “The chancellor has talked previously about having a UK tax system that is competitive. I don’t have anything else to add.”

Sources close to the budget process confirmed that several emergency money-raising measures were under consideration, including changes to the non-dom status.

Labour has promised since 2015 to end or limit the tax exemption, which allows people living in the UK but domiciled elsewhere for tax purpose to avoid paying tax on assets owned in other countries.

Rachel Reeves was planning to use the money raised to pay for measures including more GP appointments at evenings and weekends. If Hunt uses that money to pay for a tax cut instead, it will leave the shadow chancellor having to decide whether to stick with the Tories’ tax cuts or keep her previous spending pledges.

Abolishing non-dom status is one of several moves the Treasury is having to consider at the last minute to pay for Hunt’s planned tax cuts. Bloomberg reported on Thursday that he may copy Labour’s idea of extending a windfall tax on oil and gas companies, though such a move is said to be low on his list of preferred ways to raise money.

The chancellor is under pressure from Downing Street to offer pre-election tax cuts but has seen the regular public finance forecasts from the OBR get steadily gloomier in recent weeks.

The OBR has concluded that a weaker growth outlook and higher interest payments on debt mean Hunt has less room to manoeuvre than it thought at the time of November’s autumn statement. After the autumn statement the OBR calculated that the chancellor could spend another £13bn a year and still be able to hit his target of having debt falling as a percentage of gross domestic product five years later.

Another measure under consideration is reducing the amount of money to be spent on public services after the election. The government has pencilled in 1% real-terms rises for departmental spending in each year of the next parliament. Hunt is considering reducing that to 0.75%, which would mean cuts of about 20% for unprotected departments such as local government and justice.

Sources close to Hunt said on Thursday that the steeper budget cuts were on the agenda, and any rise in public spending had been ruled out. “That’s the opposite of where we are right now,” said one.

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