The Chancellor has previously argued that any tax cuts should not be inflationary. Photo: Chris J. Ratcliffe/Bloomberg
There is plenty of room for Jeremy Hunt to cut taxes by as much as £10 billion in next week's autumn statement as the economic outlook improves and inflation slows, JP Morgan said.
Allan Monks, an economist at JP Morgan, said he expects the government to borrow about £100 billion this financial year, up from the £132 billion forecast by the Office for Budget Responsibility in March.
While Meanwhile, Hunt should have a cushion of around £26.5 billion when it comes to achieving his target of reducing public debt as a percentage of GDP within five years.
Mr Monks said some of this financial power could be used to cut between £5bn and £10bn in taxes. This is roughly equivalent to a 1p cut in the base rate and a rise in the income tax rate.
He added: “The Government will want to restore political momentum ahead of a likely election next year.”
“It may try skew a tax change to incentivize improved economic supply or announce voter-friendly policies. there's a small price to pay.”
He suggested tax and spending changes could be on the agenda to encourage more people to return to work.
However, it is also possible that Mr Hunt will hold back until next year's budget, which is closer to the election and could show further improvement in the economic situation.
Mr Monks added: “Instead, the Chancellor could set aside some headroom for further fiscal easing next spring, by which time inflation is likely to have fallen further.”
The Chancellor says that any tax cuts should not be inflationary as the government is focused on delivering on its promise to halve the rate of price rises this year.
It appears to have delivered on that promise as inflation fell to 4.6% in October up from 10.5% at the end of 2022, potentially allowing the Chancellor to cut taxes.
Matthew Swannell, an economist at BNP Paribas, said: “If the government's inflation target is met, [it] could lead to some policy announcements that will have an impact on economic growth.”
“Even if the Chancellor of the Exchequer holds With their powder dry at this stage, it is possible that updated forecasts from the Office for Budget Responsibility show the government has some fiscal space, which will increase the risk of the spring budget pre-election cash giveaway.”
A spokesman for HM Treasury said: ” We have committed to reducing debt over the medium term, but our budget headroom in the spring statement was £6.5 billion, a quarter of the average headroom that chancellors have had since the OBR was created.
“Autumn The statement will focus on how we can attract investment and get people back to work so we can deliver the growth our country needs.”
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