by Thousands of families will be pushed into poverty if the Chancellor cuts national insurance in the spring Budget, think tanks have warned.
On Wednesday Jeremy Hunt will unveil his final Budget before the next general election, where he is widely expected to cut taxes in a last-ditch bid to win over voters.
Mr Hunt has hinted that a further national insurance tax cut could be on the cards, as he said Sky News that the last cut he made in the autumn statement in November was a “turning point” and he “hopes to make some progress on that journey” on Wednesday.
But now two think tanks have warned the Chancellor about further cuts. They say poorer families will benefit little from cutting the tax as they suffer a sharp drop in the services they rely on.
The Public Policy Foundation said that a further cut of 2p in the pound would cost the government £10.4bn, of which almost half would go to the richest 20 per cent of households, and as little as 3 per cent to the poorest. family. funding would benefit the poorest 20 percent of families.
The progressive think tank’s analysis also shows disproportionate regional inequality, meaning households in London would gain an average of £608, but households in the north east would see gains as low as £342.
The New Economics Foundation (NEF) has warned that even a 1p tax cut – which the exchequer is said to be actively considering – would cost the government £4.8bn, with almost half going to the richest families – while the poorest people only £160m. .
This means that the richest will receive 12 times more than the poorest, with the highest earners getting an extra £424 a year compared to £34 a year for those on the lowest.
Further analysis by the NEF shows that this cut would push an additional 55,000 people into relative poverty. Investing that amount in universal credit could instead lift 384,000 people out of poverty by an extra £720 a year.
Sam Tims, senior economist at NEF, said the Chancellor is “pushing for tax cuts that the country doesn’t want and that will benefit those who already have the most”.
“Not only will this reduce government revenue in the near future, but it will also increase inequality making us all poorer and harming the country’s prospects.”
He added: “The responsible way to run our economy is to borrow money to make smart investments that strengthen our economy and improve people’s lives. We should raise money by increasing taxes on the richest people. Investing in our schools, hospitals, housing and income safety net creates economic benefits and helps everyone live happier and healthier lives.”
The Chancellor said he hoped to use the budget to show a “path” towards the tax cuts, but stressed that any reductions in taxation would have to be “sensible”.
But the government’s tax cut plans have drawn warning from economists who have warned of the impact they could have on public services.
The International Monetary Fund (IMF) said tax cuts would be “very challenging to achieve” as Britain’s population ages and debt piles up, while the Institute for Fiscal Studies (IFS) said the Chancellor should not to announce that he cannot “provide more details on his spending plans”.
Recent forecasts from the Office for Budget Responsibility (OBR) have given the chancellor less cash room than previously thought, leading him to consider unexpected tax rises, such as ending non-domicile tax status.
Dr George Dibb, associate director for economic policy and head of the Center for Economic Justice at IPPR, said tax cuts “are not in the public interest, nor in the interest of the economy”.
Speaking to The IndependentDr Dibb said the public do not want tax cuts “because they know they were made at the expense of day-to-day spending on public services as well as future capital investment”.
“The priority of taxation above all is a sign that the government understands that people feel that the country is not working.
“But the first indication of that is not taxes, it’s the fact that they can’t get a GP or NHS dentist appointment, or that you call an ambulance that it might take 12 hours to arrive. Those are things that are far more pressing to the average voter than their tax bill.
He added: “I think we should recognize that public services are an integral part of the economy and how people feel about the economy, and should be invested in as a priority for the country.”
Despite warnings of pressure on public services, Mr Hunt insisted the government will rein in public spending so it can prioritize tax cuts.
The Chancellor told the BBC that he did not believe in “ever expanding the welfare state” because “I don’t think that is compatible with reducing the tax burden in a society that makes work pay for it”.
Last month the Resolution Foundation warned the left-wing think tank that the Chancellor’s current spending projections meant a 1 per cent increase in daily spending on public services was a “fiscal fiction”.
He explained that since health, education and defense budgets are all protected, unprotected departments such as the Home Office, Ministry of Justice and local government will see per capita cuts of 17 per cent by 2028-29.
Speaking to Times Radio, Mr Hunt said: “It’s wrong to say that the only way to improve public services is by putting more money in.”
Darren Jones MP, Labour’s shadow chief secretary to the exchequer, said “no matter what the chancellor does in the budget this week, working people will be worse off because of 14 years of Tory failure”.
The Liberal Democrats called on Mr Hunt to pledge more funding to the NHS and “put health at the heart of the budget”.
Liberal Democrat treasury spokeswoman Sarah Olney MP said: “This chronic neglect of our health services by successive Conservative Ministers is creating a sick economy and preventing our great country from reaching its full potential.”
She said: “Jeremy Hunt must put health at the heart of the Budget and reverse his disastrous short-sighted cuts to NHS spending. We cannot get the economy firing on all cylinders again without solving the health crisis, tackling the NHS backlog and helping people get back to work.”
A Treasury spokesman said: “This year’s cut to national insurance saves the average worker £450 a year and since 2010 we have taken 3 million people out of paying tax altogether. We will not speculate on whether further tax cuts will be affordable in the upcoming Budget.”
