A fall in borrowing of £13billion means ministers can afford to scrap April’s national insurance hike, experts said tonight.
The Treasury borrowed £16.8billion last month – £7.6billion less than in December 2020.
And the £146.8billion deficit so far for 2021-22 is around £13billion lower than the Office for Budget Responsibility had predicted.
With households facing a cost of living crisis in spring, experts urged Boris Johnson and Chancellor Rishi Sunak to use the extra headroom to ‘spike the hike’ in national insurance – itself of around £12billion.
Both employers and employees can expect a rise in their NI contributions of 1.25 percentage point by April.
With households facing a cost of living crisis, experts urged Chancellor Rishi Sunak to use the extra headroom to ‘spike the hike’ in national insurance – itself of around £12billion
Bethany Beckett, of the consultancy Capital Economics, said: ‘Our forecasts imply the Chancellor would have enough fiscal room to cancel the scheduled increase in national insurance taxes on April 1 to cushion the blow [of inflation] for households.’
James Smith, research chief at the Resolution Foundation, said that the lower borrowing made ‘it inevitable the Chancellor will set out a plan to deal with the cost of living crunch’.
Senior figures including Lord Frost, the Prime Minister’s former Brexit chief, have insisted that the £12billion tax grab is not needed. It will cost a worker on a £30,000 salary around £255 a year, while someone earning £50,000 will lose around £505 from their take-home pay.
Senior figures including Lord Frost (left), the Prime Minister’s former Brexit chief, have insisted that the £12billion tax grab is not needed
Julian Jessop, economics fellow at the Institute of Economic Affairs, said: ‘Between April and December, the UK Government borrowed £12.9billion less than the OBR had forecast.
‘This provides the “fiscal room” to ditch the hike in national insurance in April, which would have raised about £12billion.’
He added that the Government might still need to raise money later to fund a long-term increase in spending on health and social care – the areas which the tax grab was supposed to cover.
Yesterday, Sajid Javid, Health Secretary insisted that social care funding is secure. He told MPs he still backed the tax hike, adding: ‘It’s very important we have the long-term funding in place for the NHS and social care.’
Companies will feel the effects of the NI hike, since they must pay the levy for their employees. Suren Thiru of the British Chambers of Commerce said: ‘The cumulative effect of a national insurance hike, soaring energy bills and increasing raw material costs means firms will face mounting pressure to raise prices further, and weaken their ability to invest and recruit.’
Carl Emmerson, deputy director at the Institute for Fiscal Studies, said: ‘The long-run pressures on public services, especially health and social care, remain just the same and tax rises are likely to be needed if these are to be met.’
But he added: ‘Mr Sunak certainly could find money to delay tax rises or find other one-off ways of supporting living standards, such as uprating benefits in April with a more up-to-date measure of inflation.’
Sarah Coles, an analyst at investment platform Hargreaves Lansdown, said: ‘Now is not the time for a tax hike.’
Britain’s public finances were boosted in December by higher tax income, especially from large businesses as they performed better than expected.
You will spend more because of the increase in National insurance taxes
Factories are facing their largest price rises since the 1970s, despite rising costs and a lack of labor.
The Confederation of British Industry reported that manufacturing costs increased at an unprecedented rate in the period January through February, their fastest pace since 1980. The December record for inflation was 5.4%. It is forecast to rise to 7.1% this spring.
Rain Newton-Smith, the CBI’s chief economist, said: ‘Global supply chain challenges are continuing to impact UK firms, with our survey showing intense and escalating cost and price pressures.’ She called for the Government to take short-term action to find solutions to help struggling firms.