Media speculation follows reports that government borrowing is £19.8bn lower than expected
There may be some “wiggle room” in the Chancellor’s budget ahead of the Autumn Statement, according to the Telegraph.
The rumours are based on recent government borrowing figures, which have been lower than forecast throughout the year. This is the result of aggressive taxation policies since Hunt’s appointment as Chancellor last year, leading to a 7% tax revenue increase.
The Telegraph reports that government borrowing for the first six months of the financial year was expected to total £101.5bn. However, the latest forecasts from the Office for Budget Responsibility (OBR) suggest that borrowing is actually around £20bn lower, at £81.7bn so far this financial year.
In theory, this means that there is room in the budget to play with. As such, sections of the media have begun to speculate that the Chancellor will consider announcing some tax breaks.
This is potentially positive news for the UK’s contractors and freelancers, who have been repeatedly targeted during tax raids throughout the last few years.
Contractors shoulder disproportionate tax burden
With national debt almost on par with GDP, Hunt’s approach during his tenure so far has been on raising tax revenues, with freelancers and contractors disproportionately affected by tax increases – including Corporation Tax.
The main rate of Corporation Tax was uplifted at the start of the tax year (6th April 2023), from 19% to 25%, levied on profits over £250,000.
According to the Telegraph, the move has made Corporation Tax “the fourth biggest revenue generator for the Treasury”, exceeding official forecasts.
Predating this increase, contractors have also had to contend with IR35 reform, which was briefly abolished under Liz Truss just last year before being immediately reinstated by Hunt. Similarly, the dividend tax-free allowance has been gradually cut, from a high of £5000 in 2016/17 to just £1000 in 2023/24.
Collectively, these increases have served to put contractors under greater financial pressure. The Institute for Fiscal Studies (IFS) estimates the UK tax burden is now at a 70-year high and, by 2024, taxes will represent 37% of national income.
Combined with the prolonged effects of inflation, the UK’s tax burden means self-employed workers are under considerable strain.
A stepping stone to Spring Statement cuts?
However, the Telegraph report is at odds with what Hunt has already said publicly. Speaking at the start of October – and previously quoted in the Telegraph – Hunt insisted that he would not introduce tax cuts, which could be “inflationary”.
When quizzed about the possibility of tax cuts, Hunt said: “At the moment, we’re not in a position to have that conversation”. As such, the latest report – published on 20th October – means that potential tax cuts remain speculative.
If government borrowing continues to be below forecasts for the rest of the financial year, though, the Spring Statement may offer better opportunities to lower the tax burden.
Speaking to the Telegraph, a senior economist at HSBC – Elizabeth Martins – suggested that “better fiscal news” now could “free up some space for tax cuts in the Spring”.
“A little more fiscal room, plus lower inflation and stable markets, might allow that – even if it raises some eyebrows”, she added.
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