Rishi Sunak says the time was right to cut taxes, two days ahead of the Autumn Statement, igniting speculation that taxes that affect the housing market may be eased.
The Prime Minister explained that after inflation had fallen to a two-year low of 4.6% in October from the 6.7% the month before, and tumbling by half since the start of the year, it was appropriate to look at the country’s tax burden.
“So, now that inflation is halved and our growth is stronger meaning revenues are higher, we can begin the next phase and turn our attention to cutting tax,” Sunak points out in a speech in north London this morning.
He adds: “We will do this in a serious, responsible way based on fiscal rules to deliver sound money and alongside the independent forecasts of the Office for Budget Responsibility.
“We can’t do everything all at once. It will take discipline and we need to prioritise. But over time we can and we will cut taxes.”
Ahead of the Chancellor’s Autumn Statement on Wednesday, Jeremy Hunt has “around £12bn in fiscal headroom to meet his debt-to-gross domestic product target” due to higher-than-expected tax revenues, partly due to higher wage settlements, says Deutsche Bank.
However, some forecasters claim the Chancellor now has as much as £25bn more than he expected in the Treasury’s coffers.
Whatever the exact figure, it is far more than the £6.5bn he had to play with at the time of the March Budget.
Reports suggest that the Treasury is considering a 1p, or even 2p, cut in income tax, lower National Insurance payments, or lowering the thresholds when these rates are payable. Business investment may also be in line for tax reductions.
However, the housing industry will hope to see a share of this extra cash.
Speculation has swirled over halving the 40% rate of inheritance tax, although some critics say this would amount to a handout to property owners during a cost-of-living crisis.
Hargreaves Lansdown head of personal finance Sarah Coles says: “A potential cut in the rate of inheritance tax could make political sense because it’s unpopular even among people who will never be subject to it.
“Jeremy Hunt can also deliver it without massive expense or inflationary risk, because it wouldn’t put more money in people’s pockets on an everyday basis.
“It would be popular among those people keen to pass wealth on to support younger generations.
“But, if inheritance tax is set for changes, the system needs looking at properly with simplification at the heart of any review.”
There may be cuts to stamp duty, which begins at 5% on homes valued at over £250,000 and £425,000 for first-time buyers.
Jeremy Leaf, north London estate agent and former Royal Institution of Chartered Surveyors residential chairman, says: “We don’t believe any tweaks [to stamp duty] may be appropriate unless focused on first-time buyers who are the lifeblood of the market.
“They trade up — unlike investors who tend to buy and stay at lower price levels. More transactions are good not just for the property market but the general economy in view of their multiplier effect on so many other businesses.
“FTBs also free up rental properties to other tenants who are not yet ready to buy, reducing renewals and easing the shortages, particularly of desperately-needed affordable homes.”
Another option could be that the Chancellor lifts the value of a home that can be purchased using a Lifetime ISA from its current £450,000 limit.
This may help FTBs, especially those in the south who can struggle to find a property worth less than this.
Hargreaves Lansdown head of retirement analysis Helen Morrissey says: “It would be incredibly disappointing if Hunt decided not to take the opportunity to make small changes to the Lisa that would make it fairer and even more effective.
“We still think there’s room to cut the Lisa penalty. If people need to withdraw money for any reason other than a first-time property or after the age of 60, the 25% penalty currently not only claws back the government bonus to save, but also applies an additional 6.25% penalty based on the amount invested.
“This is a horrible price to pay for trying to do the right thing. We also think it’s only fair that the limit on the price of a property you can buy with a Lisa is raised to reflect rising house prices.”
AJ Bell head of personal finance Laura Suter sums up the Chancellor’s dilemma over how to use the cash he has available to him.
She says: “Estimates of how much spare money the government has to play with vary wildly, and we won’t know the true figure until the Office for Budget Responsibility releases its report this week, but we do know that Hunt doesn’t have huge sums to play with.
“That means he’ll probably be looking for a goldilocks tax cut that boosts productivity, is popular enough that it appeases backbench MPs, doesn’t come with a huge price tag, and won’t risk fuelling inflation — it could be like finding a needle in a haystack for Treasury policymakers.”
