Government officials said Hunt was drawing up plans to extend the freeze in the “nil rate zone” of inheritance tax from 2025-26 to 2027-28, a move that would raise at least half a billion pounds for the Treasury. The plan is part of a wider strategy to use “fiscal drag” to secretly raise the funding needed to restore order to the public finances when Hunt delivers his Autumn Statement on November 17. With inflation high, Hunt plans to keep tax-free thresholds flat for various contributions, including those on income, pensions and capital gains to expand the state’s tax burden by billions of pounds through the back door. The move will hurt traditional Tory voters, but Hunt and Rishi Sunak, the prime minister, have insisted those with “broader shoulders” should pay more. Treasury insiders say Hunt is looking at a budget cut of around £54bn aimed at reducing debt as a share of national income in the fifth year of the forecast period. This would include “headroom” – or margin for error – of up to £10bn. Meanwhile, the government has abandoned plans to build a £250m ‘national flagship’ – dubbed ‘HMS Brexit’ – which was meant to drive trade deals around the world. The suspension of the publicly funded project, touted as a successor to Royal Yacht Britannia but derided by critics, is the first major spending cut ahead of next week’s announcements. However, Sunak decided not to raise bank taxes, according to people briefed on preparations for the Autumn Statement, sticking to the plans he originally had as chancellor last year. Hunt has already brought back Sunak’s plan to raise corporate tax rates to 25 percent next April. The Liz Truss administration had proposed keeping the existing rate at 19%. Before Sunak became prime minister, Hunt had kept the current 8 per cent “banking charge” on the table, which could see the effective tax rate for banks rise from 27 per cent to 33 per cent from next April. Sunak has insisted on sticking to the 25 percent corporate tax rate from next April, but will cut the bank surcharge from 8 percent to 3 percent. This means banks will pay a real interest rate of 28 percent – higher than now. Recommended The Treasury said: “Banks should continue to make a fair, sustainable tax contribution to the public purse, but we recognize the need for the tax system to support our aims for a strong and competitive banking sector.” The Hunt Autumn Statement will use ‘stealth’ measures to raise taxation. The original freeze on the inheritance tax threshold until 2025-26 was announced in the 2021 Spring Budget by Sunak when he was chancellor. This policy was to raise £1bn over four years, according to the Treasury at the time. But that figure is now likely to be much higher because of the sharp rise in inflation, according to Stuart Adam, senior economist at the Institute for Fiscal Studies. Extending the cap freeze for another two years beyond 2025-26 would raise £400m-£500m if inflation returns to the 2% target level, according to Adam. If, however, inflation is higher, then the freeze would raise more money for the state. On death, inheritance tax is paid at 40 per cent on the value of the estate above the nil rate band – the level at which no tax is paid – which has been set at £325,000 since 2009 and £650,000 for a couple. In 2017, the government introduced a new £175,000 transferable main home nil band, which applies when a home is left to direct descendants. If the nil rate band had increased in line with inflation, it would have risen from £325,000 to £428,000 in the period since 2009. Tax receipts from inheritance tax have soared from £2.3bn in 2009 to £6bn in 2021-22 as property prices have soared while the threshold has remained the same. The Treasury said it would not comment ahead of the autumn statement. With just 10 days until Mr Hunt is named in the Commons, the chancellor is preparing a massive fiscal tightening on the same scale as his predecessor George Osborne’s 2010 austerity budget. The final total for spending cuts has yet to be decided, reflecting day-to-day swings in gold markets, but is now higher than ministers expected a fortnight ago. Under his proposals, Hunt currently aims to cut £33bn of public spending while raising taxes by around £21bn, officials say, which would entail severe cuts to departmental spending. The chancellor could also break the “triple lock” on state pension increases, which ensures pension payments rise in line with inflation, average earnings or by 2.5 per cent each year, whichever is higher. Another controversial option would be to increase benefits in line with average earnings rather than inflation. Hunt has warned of “incredibly difficult” decisions ahead. The chancellor is considering freezing income tax thresholds for another two years until 2027-28, as well as increasing the tax rate on share dividends and reducing the tax-free allowance on dividend income. It is also considering a cut in capital gains tax reliefs or allowances paid on shares and second homes. Hunt is likely to extend the current freeze on the annual CGT allowance of £12,300 from 2025-25 to 2027-8. The chancellor is expected to freeze the lifetime pension allowance for another two years until 2027-28 at its current rate of £1,073,100.
