Everything expected to be in the Budget: Chancellor set to make fresh cut to national insurance and freeze fuel duty while punishing vapers, smokers and non-doms… but could he also have an income tax rabbit in his red box?

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Jeremy Hunt is making final preparations for his crucial pre-election Budget today as hopes mount that he could push through big tax cuts.

The Chancellor had an audience with the King at Buckingham Palace this morning after finalising the package after months of wrangling.

There are signs that Mr Hunt will be able to unveil a move on personal taxes, regarded by many as essential for the Tories to have a chance of clawing back Labour’s massive poll advantage.

Although most speculation has focused on a possible further 2p cut to national insurance, some Conservatives remain optimistic that Mr Hunt will go further and target income tax.

While significantly more expensive, that is regarded as more likely to cut through with voters – and a counter to the burden reaching a new post-war high.

Jeremy Hunt was pictured in his office at No11 last night making final preparations for his crucial pre-election Budget

Jeremy Hunt was pictured in his office at No11 last night making final preparations for his crucial pre-election Budget

There are signs the Chancellor will be able to unveil a move on personal taxes in his Spring Budget

There are signs the Chancellor will be able to unveil a move on personal taxes in his Spring Budget

Although most speculation has focused on a possible further 2p cut to national insurance, some Conservatives remain optimistic that Mr Hunt will go further and target income tax

Although most speculation has focused on a possible further 2p cut to national insurance, some Conservatives remain optimistic that Mr Hunt will go further and target income tax

Suspicions remain that the Treasury is engaged in a campaign to play down expectations so the Chancellor's 'rabbit' has maximum impact

Suspicions remain that the Treasury is engaged in a campaign to play down expectations so the Chancellor’s ‘rabbit’ has maximum impact

Mr Hunt is pictured training for the London Marathon with his dog Poppy ahead of his Spring Budget

Mr Hunt is pictured training for the London Marathon with his dog Poppy ahead of his Spring Budget

The Chancellor had an audience with the King at Buckingham Palace today after finalising the package after months of wrangling

The Chancellor had an audience with the King at Buckingham Palace today after finalising the package after months of wrangling

The political importance of a Budget breakthrough for the Tories was underlined yesterday when an Ipsos poll put the party on a record low rating of just 20 per cent

The political importance of a Budget breakthrough for the Tories was underlined yesterday when an Ipsos poll put the party on a record low rating of just 20 per cent

Targeting income tax is significantly more expensive, but it is regarded as more likely to cut through with voters - and a counter to the tax burden reaching a new post-war high (as shown in chart)

Targeting income tax is significantly more expensive, but it is regarded as more likely to cut through with voters – and a counter to the tax burden reaching a new post-war high (as shown in chart)

What is expected to be in the Budget? 

Fresh 2p cut to National Insurance

At his Autumn Statement in November, Jeremy Hunt announced a two percentage point cut to National Insurance contributions.

It is speculated the Chancellor is poised to repeat the trick at the Budget at a cost of around £10bn a year.

This would allow Mr Hunt to claim he has delivered a tax cut worth a total of £900 for the average worker, when combined with his action at the Autumn Statement. 

New tax on vapes

Mr Hunt is expected to unveil a new tax on vapes in his Budget speech.

Currently, vaping products are subject to VAT but, unlike tobacco, they are not also subject to a dedicated levy.

A new duty is set to be levied on the liquid in vapes, with higher rates for products with more nicotine.

Rise in tobacco duty

To coincide with a new tax on vapes, the Chancellor is poised to bump up tobacco duties so there is still an incentive for people to opt for vapes.

This would copy action taken by Mr Hunt at the Autumn Statement, when he increased the duty rates on all tobacco products.

It has been suggested a further levy hike at the Budget would push the price of a packet of cigarettes to £16.

Action on ‘non-dom’ tax status

Mr Hunt has drawn up plans to scale back or even scrap Britain’s ‘non-dom’ tax rules altogether.

He is said to have considered the move as a means of raising as much as £3.6bn to pay for tax cuts elsewhere.

It would also have the added benefit for the Tories of creating a huge problem for Labour.

Sir Keir Starmer’s spending plans rely heavily on the added tax revenue a Labour administration would receive by axing or reducing the existing tax break.

Extension of windfall tax on North Sea oil and gas

The Chancellor could also extend the windfall tax on North Sea oil and gas producers’ profits as a means of funding tax cuts elsewhere.

Officially known as the Energy Profit Levy, the windfall tax was introduced in May 2022 after a jump in energy prices resulting from Russia’s full-scale invasion of Ukraine.

Mr Hunt is expected to extend the levy by one more year to 2029.

Crackdown on tax breaks for holiday lets

The Chancellor could raise another £300million by abolishing the furnished holiday lets tax relief.

This would scrap a series of tax perks for landlords who rent out their properties to short-term holidaymakers rather than long-term tenants.

Mr Hunt would likely argue the move will help tackle the housing shortage in areas such as Cornwall and the Lake District.

Extension of 5p cut in fuel duty

The Chanellor will extend a 5p cut in fuel duty for another year.

In a £5bn package for drivers, fuel duty will be frozen for the 14th consecutive year and the ‘temporary’ 5p cut in the rate – first introduced in 2022 – will be extended for another year.

Higher air passenger duty for business travellers

Another revenue-raising move could see Mr Hunt hike air passenger duty on business travel.

Air passenger duty on business class travel is currently charged at £13 for domestic flights, £26 for flights up to 2,000 miles, £191 for flights up to 5,000 miles and £200 for flights longer than that.

A small rise in duties is already scheduled for 1 April, but Mr Hunt could announce a further hike.

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Suspicions remain that the Treasury is engaged in a campaign to play down expectations so the Chancellor’s ‘rabbit’ has maximum impact. No10 has long been pushing for income tax cuts.

‘He knows he has to surprise everyone,’ one ex-Cabinet minister told MailOnline. ‘Too late if he doesn’t.’

Former home secretary Priti Patel was today among senior Tories to call for an income tax cut, as she warned hard-pressed families needed ‘a breather’.

Mr Hunt is set to extend a 5p cut in fuel duty for another year as he recommits to a 14th year of freezes as part of a £5billion package for drivers.

The Budget planning is believed to have been thrown up in the air last week when the Office for Budget Responsibility (OBR) watchdog warned that Mr Hunt’s tax-cutting proposals were ‘unaffordable’.

Future public spending is set to be squeezed and a string of smaller tax rises will be introduced to help pay for the package.

These could include extending the windfall tax on North Sea oil and gas, a new tax on vaping coupled with higher taxes on smoking, plus raising air passenger duty on business flights and cutting tax breaks for second home owners. 

Whitehall sources said the NHS would miss out on extra funding, with no cash boost expected to cut waiting lists.

Yesterday the Institute for Fiscal Studies warned that the health service would need billions in additional funds this year to avoid job cuts. 

It also urged Mr Hunt to ‘tread carefully’ on reforming the tax regime for non-doms – another proposed measure – warning that thousands of wealthy foreigners could leave the UK if the tax breaks are scrapped.

The political importance of a Budget breakthrough for the Tories was underlined yesterday when a poll put the party on a record low rating of just 20 per cent. 

The Ipsos Mori survey gave Labour a 27-point lead. 

If the figures were repeated at a general election, the Tories could be left with just 25 seats.

On the back of the poll, ex-Tory MEP David Campbell Bannerman urged Mr Sunak to step aside in favour of a more popular leader.

A separate survey by Deltapoll put the Labour lead at 14 points and Tory support at 27 per cent.

Yesterday Mr Sunak put his troubles to one side and was all smiles as he helped launch Panattoni Park, a £900million commercial complex on the site of the former Honda plant in Swindon.

However senior Tories acknowledge that the Budget may be one of the last opportunities to show the public that they have returned to their tax-cutting traditions.

Dame Priti told Sky News today: ‘Right now this has to be about giving hard-pressed families a breather and actually giving more of their own money back.’

The former Cabinet minister expressed concerns about ‘more and more people’ being ‘dragged into paying higher rates’ due to Mr Hunt’s freeze on income tax thresholds.

The Chancellor yesterday confirmed that he hopes to move towards a ‘lower taxed economy’ but acknowledged it would have to be done in a ‘responsible’ way.

Ministers had hoped to produce a major tax giveaway this week but worsening projections from the OBR have constrained Mr Hunt’s ability to act.

Mr Sunak is pushing to cut the basic rate of income tax by 2p but the straitened circumstances mean the Chancellor may have to settle for a similar cut in national insurance. This is cheaper as pensioners do not pay it.

To help balance the cost of the Budget package, Mr Hunt will trim future public spending plans by £5billion and raise a string of smaller taxes.

There will be no new money for defence, despite threats from Russia and the Middle East crisis.

The 5p cut in fuel duty was introduced by Mr Sunak in 2022 after oil prices were sent soaring by Russia’s invasion of Ukraine. It was meant to last for a year but was renewed again last March.

Treasury officials had pushed to scrap it after a drop in pump prices but this idea was vetoed by Mr Hunt as politically untenable.

Liberal Democrat leader Sir Ed Davey today claimed any tax cuts in Mr Hunt’s Budget would be a ‘swindle’.

On a visit to the Chancellor’s Godalming and Ash constituency, which the Lib Dems hope to win at the general election, Sir Ed said: ‘If they do cut taxes people will know it’s a deception, because they’ve raised income tax by freezing the tax allowances, a sort of a hidden tax rise on millions of people.’

He added: ‘They may try and put on a swindle, but I think people will see through it. This is a tax-raising Conservative Government.’

Tax reforms risk losing non-doms 

Jeremy Hunt was told to ‘tread carefully’ on reforming the tax regime for non-doms yesterday – and warned that wealthy foreigners could leave the UK if tax breaks are scrapped.

Non-doms can avoid paying tax on overseas earnings in return for an annual £30,000 fee.

But the Institute for Fiscal Studies (IFS) last night said that the 37,000 non-doms in the UK pay around £6billion a year in other UK taxes.

Stuart Adam, a senior economist at the think tank, said there was a ‘strong case’ for reform. However, he warned that scrapping non-dom status ‘would arguably be unfair to those coming and make the UK a less attractive location’.

He added: ‘It might be possible to raise a couple of billion pounds more from non-doms.

‘The more ambitious tax-raising reforms are, the greater the potential revenue yield – but also the greater the risk that the UK would attract fewer non-doms and lose tax revenue.’