UK Chancellor’s tax cut plans derailed by reduced fiscal headroom

Chancellor considers random tax rises, such as repealing non-dom status after the latest prediction.

Forecasts and Fiscal Constraints

Treasury insiders revealed that Chancellor Jeremy Hunt’s plans for tax cuts in the upcoming budget have been constrained by recent forecasts from the Office for Budget Responsibility (OBR). 

These forecasts have left him with less fiscal headroom than anticipated, prompting considerations of emergency measures to boost revenue.

Potential Emergency Measures

In light of the tighter fiscal outlook, the chancellor is exploring unexpected tax rises as a means to mitigate the shortfall. 

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One option under consideration is abolishing the non-domiciled (non-dom) tax status, a move that could yield significant revenue, possibly around £3.6 billion annually.

Budgetary Challenges and Policy Options

Facing pressure to balance tax cuts with debt-reduction targets, Hunt is contemplating reducing spending forecasts post-election to fund immediate tax cuts. 

However, this approach has drawn criticism from economists who question its feasibility. 

Despite the potential popularity of allocating more funds to public services, the chancellor has reportedly ruled out this option.

Impact on Labour’s Plans

Labour’s longstanding commitment to ending or limiting the non-dom tax exemption is highlighted in the context of Hunt’s considerations. 

Shadow Chancellor Rachel Reeves had earmarked revenue from such measures for initiatives like expanding GP appointments. 

If Hunt redirects this revenue towards tax cuts, it could prompt Labour to reassess its own spending priorities in response to the shifting fiscal landscape.