Recession shock bolsters case for tax cuts, economist tells Jeremy Hunt

This was due to the country’s economy experiencing two consecutive quarters of negative gross domestic product (GDP) growth.

Confirmation that the UK fell into recession at the end of 2023 could threaten the Government’s headroom to implement this type of fiscal agenda, but economist Julian Jessop is encouraging Rishi Sunak and Jeremy Hunt to introduce tax cuts, insisting the case for them “is now even stronger”.

Do you have a money story you’d like to share? Get in touch by emailing money@gbnews.uk.

Mr Jessop, an Institute of Economic Affairs’ fellow, said: “There is room for some well-targeted tax cuts that would both support demand and boost the productive potential of the economy.”

However, he warned it was important Mr Hunt “avoids doing anything that might reignite inflation and encourage the Bank to keep rates higher for longer”.

Mr Jessop continued: “Nonetheless, the UK’s problems clearly run deep, and a few tweaks to interest rates and tax rates won’t fix them.

“The longer-term story is that the economy is facing two decades of stagnation.

“There is an urgent need for the government to pursue pro-growth policies across the board.”

Recently, Mr Sunak and Chancellor Jeremy Hunt have hinted that tax cuts could be introduced by the Government during the Spring Budget on March 6.

According to Mr Jessop, the “biggest driver” of the country’s “shock recession” is the Bank of England’s decision to raise interest rates.

The central bank has pushed the base rate to 5.25 per cent, following multiple hikes, in an attempt to rein in inflation.

LATEST DEVELOPMENTS:

• Britons urged to ‘be proactive’ if state pension age rises to 71
• 15,000 people could be £7,000 better off after 10-minute check – are you?
• Pension pots could be boosted by £16,000 via tax relief hack

For the last months, the Consumer Price Index (CPI) has remained at four per cent with further rate cuts from the Bank of England not expected until later in the year.

The Institute of Economic Affairs’ fellow explained: “There will also be more pressure on Jeremy Hunt to cut taxes in the Spring Budget.

“The Chancellor needs to be careful here. There is already some additional stimulus from the cuts in National Insurance in January and from the increases in pensions, benefits and the national minimum wage in April.”

Last month, the Government slashed the rate of National Insurance from 12 per cent to 10 per cent which will reportedly save the average earner £450 a year.

Tory politicians are hoping Mr Hunt will outline a similar tax cut in the House of Commons come Budget day.