In a move described as bringing personal taxes to their lowest level since 1975, UK Chancellor Jeremy Hunt announced a significant cut in national insurance by 2p, aiming to provide financial relief for millions of workers and self-employed individuals across the country. With this reduction, the average employee is expected to save approximately £450 annually, a change Hunt heralds as the “lowest effective personal tax rate” in nearly half a century. This tax adjustment is part of a broader set of fiscal policies designed to stimulate economic growth and enhance the labour supply, potentially adding the equivalent of 98,000 full-time workers by 2028-29, according to the Office for Budget Responsibility (OBR).

Despite these optimistic projections, the Chancellor’s recent tax cuts have been met with skepticism by economists and fiscal watchdogs. The OBR, while acknowledging some positive developments such as easing inflation and interest rates, indicated only modest adjustments to the UK’s economic growth outlook by 2028. Concerns were raised over a notable upturn in estimates for the adult population growth counterbalanced by a worrying trend of inactivity among the working-age population, factors that collectively dampen the anticipated gains from the tax cuts.

Critics, including the Institute for Fiscal Studies, have pointed out that the benefits of Hunt’s tax policies may be narrow in reach, primarily aiding a specific segment of working-age adults, with the broader populace potentially facing financial drawbacks by the next election. This sentiment is exacerbated by the ongoing freeze on income tax thresholds and the phenomenon of fiscal drag, likely to incrementally place more individuals into higher tax brackets.

In parallel, the spring Budget drew critique from the SNP, with spokesperson Drew Hendry labeling Jeremy Hunt an “austerity Chancellor” and condemning the measures for falling short in addressing the needs of public services like the NHS and sectors such as green energy. Concerns have been expressed about the sustainability of public finances and the real growth in public spending per person, casting doubts on the budget’s capacity to alleviate the economic strains on lower-income groups and effectively tackle fundamental issues such as labor supply and inactivity.

While Chancellor Hunt defended the tax reductions as a step towards enhancing living standards without resorting to increased borrowing or reducing public service spending, he hinted at potential further cuts to national insurance in the pursuit of eliminating what he termed the “double taxation of work.” Despite these assurances, the tax-to-GDP ratio in the UK is projected to rise, underlining the delicate balance the government must maintain between spurring economic activity and ensuring fiscal prudence in the years ahead.