Can the Tory party now credibly claim it is cutting taxes? That was the big mystery going into Jeremy Hunt’s pre-election Budget this afternoon, as so many of the policy measures had already been trailed.

As expected, the Chancellor announced another 2p off employee National Insurance, following on from the 2p cut he announced in the Autumn Statement. Between both fiscal events, NI falls from 12 per cent to 8 per cent (and from 10 per cent to 6 per cent for the self-employed) – a saving of £900 a year for the average worker. Hunt also announced changes to child benefit rules, which will shift the calculations from individual to household earnings, and raise the threshold for paying the charge. The Treasury estimates, with these changes, that ‘nearly half a million families with children will save an average of around £1,300 next year.’

The tax cuts are barely affordable. The Chancellor has further reduced his headroom to meet his fiscal rules – which require debt to be falling as a percentage of GDP in the medium term – from £13 billion last November to £8.9 billion now. This headroom is extremely low compared to what other chancellors have left over the past 15 years: a risk Hunt has decided to take so he can deliver more tax cuts.

This is what happens when you stick with the plan that’s working. pic.twitter.com/WFTzJybNPq

— Conservatives (@Conservatives) March 6, 2024

Naturally the government wants to hail the Budget as a tax-cutting success story, tweeting out after Hunt sat down: ‘We’re cutting your taxes…again’. On the further cuts to NI, Hunt proclaimed to his colleagues in parliament that ‘the average earner in the UK now has the lowest effective personal tax rate since 1975…one that is lower than in America, France, Germany or any G7 country’. This is what the government wants to draw our attention to: so much so that a ‘personal tax factsheet’ pressed released by the Treasury today breaks down the kinds of savings an average worker might receive thanks to these cuts: ‘an average full-time nurse on £38,900 will be better off by £1,053’; ‘A typical junior doctor on £65,000 will be better off by £1,508’; ‘The typical teacher on £44,300 will be better off by over £1,270’.

But will workers really thank the Tories for making them better off? Despite cutting NI further, the underlying tax problem facing the Tories remains the same: despite these cuts, the tax burden is still rising, spectacularly so, still on track to reach a high not seen since the aftermath of the second world war.

Hunt’s Budget has shifted the tax burden slightly: according to the Office for Budget Responsibility, the tax burden is on track to reach 37.1 per cent of GDP by 2028-29, slightly down from their projection of 37.7 per cent back in November. Make no mistake, the tax burden is not falling, which is what the government needed to achieve to credibly craft a tax-cutting narrative. It is still set to rise every year of the next parliament, as the Tory party sets the country up for almost record-high levels of taxation.

Part of the reason the tax burden isn’t shifting is because the Chancellor is raising taxes elsewhere to pay for his NI cut. The two big announcements in this Budget were the changes to non-domiciled tax status (which will become more generous for newcomers to the UK, but abolish the long-term status) estimated to raise £2.7 billion, and an extension of the Energy Profits Levy on oil and gas companies for an additional year, estimated to raise £1.5 billion (raising further questions from industry about whether this levy is really ‘temporary’ at all).

But the real culprit continues to be the tax thresholds Rishi Sunak froze when he was chancellor, which continue to drag millions of people into paying more tax. According to the OBR’s latest forecasts, the numbers affected have fallen slightly, but will still affect millions of workers. By 2028-29, an estimated 3.7 million workers will be dragged into paying tax and another 2.7 million more workers will be paying the higher-rate taxpayers. Meanwhile 600,000 workers will pay the 45p rate – an increase of 200,000 from the previous forecast.

These stealth taxes are forecast by the OBR to raise Treasury receipts by £41.1 billion (the majority of which comes from freezes to income tax thresholds) – a tax hike that is four times larger than the £10 billion NI tax cut.

So many of those nurses, teachers and other professions listed by the Treasury (particularly those on low pay) aren’t really better off; the combination of tax rises and tax cuts ushered in by this parliament has made them worse-off than they were before.

Will workers really thank the Tories?

Giving with one hand and taking with the other has been the government’s tactic for some time now, as other options for funding tax cuts have seemed too controversial, or too difficult, to achieve. Despite speculation that Hunt would further reduce day-to-day public spending increases over the next parliament – possibly down to 0.75 per cent a year in real terms – the Chancellor kept his plans to increase spending by 1 per cent a year, as announced last November.

At the time, the Institute for Fiscal Studies calculated this amounted to a £20 billion black hole in departmental spending – one that very few economists believe would go unaddressed by the Labour party or the Tory party in the next parliament. It seems Hunt didn’t think he could push these calculations much further – not convincingly anyway – though productivity gains remained a big part of his Budget’s focus, including ​​an additional £3.4 billion for the NHS to update its IT systems.

For a fiscal statement labeled by the Chancellor the ‘Budget for Long Term Growth’, the growth forecasts from the OBR leave much to be desired. Last year’s figures were revised down substantially (accounting for the news that the UK entered a technical recession last year), showing practically zero growth in 2023. Growth for this year was revised upwards, but only by 0.1 per cent – coming to 0.8 per cent for 2024.

These are not the kind of lacklustre figures that a government wants leading up to polling day. Then again, they probably didn’t want a tax burden on track to reach levels not seen since 1948, either. Yet both facts are undeniable.

Listen to Katy Balls, Kate Andrews and the OBR’s David Miles discuss the Budget on Coffee House Shots: