Transcript: Tax cuts — will they or won’t they?

This is an audio transcript of the Money Clinic podcast episode: ‘Tax cuts: will they or won’t they?’

Claer Barrett
They say that death and taxes are the two certainties in life. But the upcoming general election means that when it comes to tax, anything could happen. I’m Claer Barrett, the FT’s consumer editor, and for this episode of Money Clinic, we’ve travelled to the heart of Whitehall to quiz the financial secretary to the Treasury about the direction he would like future tax policy to take. Let’s go inside and find out.

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In the ministerial office waiting area now. It’s a real sense of history in this building. I mean, architecturally, it’s quite imposing. Long corridors, arched passageways, wooden doors behind which goodness knows what kinds of discussions about tax cuts may or may not be going on. We’re here to talk to the man who’s going to decide. Hello.

Nigel Huddleston
How are you doing?

Claer Barrett
Thank you ...

Nigel Huddleston
Good to see you.

Claer Barrett
It’s great to meet you. 

Nigel Huddleston
It’s great to meet you as well.

Claer Barrett
Nigel, would you like to introduce yourself to Money Clinic listeners?

Nigel Huddleston
Absolutely. So I’m Nigel Huddleston. I’m the Member of Parliament for Mid Worcestershire. But for your listeners more importantly, I’m the financial secretary to the Treasury, and I was appointed to this role in November last year, having had various roles before, including at Department for Business and Trade and DCMS and a few other roles and a Whip as well in my past.

Claer Barrett
We’re sitting down to talk just days ahead of January the 31st, which of course is very important date in the tax calendar. I hope you filed your tax return, Nigel.

Nigel Huddleston
I certainly have. Yeah, yeah. Don’t worry about.

Claer Barrett
HMRC is expecting nearly 12mn people, just over 12mn people, in the UK to submit return, which is a really high number. And one of the reasons for that, of course, is frozen tax thresholds, whether that’s income tax or the child benefit or income charge or tax on savings interest, lots of these points at which we start to become liable for tax haven’t changed for a long time, which is one of the key focuses leading into the next budget. People want thresholds to raise and taxes to fall.

Nigel Huddleston
Reducing the tax burden is an absolute commitment. It’s in our DNA as Conservatives. It’s what we want to do. We want to put money into people’s pockets. But of course we are paying back £350bn of Covid debt and £100bn of support for during the cost of living crisis that all needs to be paid back. So taxes are higher than we would desire. But when we’ve got the room for manoeuvre to reduce taxes, that’s what we want to do. And we’ve just done that. We’ve NICs. Now in terms of fiscal drag, we are well aware of the challenges there. But also if you look from the period from 2010, we’ve got a proud record of significantly increasing the tax-free allowance. Back in 2010, it was about £6,500 on income tax. It’s now over £12,500. Plus, just a couple of years ago, we increased the tax-free allowance for National Insurance contributions as well. So that equates with the amount for income tax because they were actually disparate previously. So over the course of the last 14 years we’ve made significant improvements. So when you combine the increases in the tax-free allowance and the reductions in NICs that we announced last autumn, the average person is paying about £1,000 less tax than they otherwise would have done. But we always want to make sure we put more money into people’s pockets. And these things are live conversations.

Claer Barrett
Now, let’s unpack the National Insurance cut a little bit, because people getting paid, if they’re somebody who gets paid monthly in a job at the end of January in their pay packet, the nicest that is, some say slightly bigger now for the average worker, somewhere between £20 and £30 if you earn more than the average salary of around 30K then than a bit more. I mean, it’s a small but significant step in the right direction. Would you like to go further than that and why National Insurance and not income tax.

Nigel Huddleston
Really going back to the point I made earlier on: we want to reward hard work. And one of the best ways to do that is through National Insurance because, of course, that is 27mn employed people and about 2mn self-employed people. And it’s much more targeted towards workers than, for example, income tax cuts. And of course, we could move very, very quickly as well. So we announced in November and the changes have already been brought in. People are feeling it in their pay packets now. So there was a 2 per cent cut for employed people. On average that’s £450 for the average worker on about £35,000. If you’re any more than that, it can be significantly more. Junior doctors, train drivers, for example, will benefit to the tune of about £750 a year. And then in April we’ll be bringing in the self-employed reductions as well. And on average that’s about £350. We’d like to do more when we can, but as I said, we’ll do so in a responsible way. If the finances allow, we’d like to continue with further tax cuts, because putting money into people’s pockets is really, really, really important. We’ve been through difficult times, and now we want people to be able to feel that they can spend their money as they want to. And, you know, the UK economy when we compare ourselves to every economy is actually recovering quite well and we are doing quite well. But not everybody feels that. But when they see tax cuts, they do feel it.

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Claer Barrett
Obviously there’s a lot of focus and expectation in the media that we’ll be getting tax cuts at the budget on the 6th of March. but at the weekend I asked my Instagram followers what they would value more — £29 a month as a tax cut or the ability to get a doctor or dentist’s appointment more easily than they can right now. Which do you think 75 per cent of people said they would rather have?

Nigel Huddleston
Well, you know, the reality is I think people would like both. And that’s what we’re trying to deliver. And we can do both. And we should be able to do both. Because it is, you know, providing public services, my job is to raise taxes. That is my job. I am I’m literally the tax man. And it’s a really important part of government. But we need to make sure we raise those taxes for a purpose and making sure that our public services are provided for is key to that. But it’s always a matter of balance, making sure, as well, that people who work hard can take as much of that money home with them.

Claer Barrett
Mmm. Well, on the subjects of how we can simplify the tax system — which is something that I know you’re very passionate about — there are two particular points, when it comes to fiscal drag, working against hard-working families, if you like, £50,000 and £100,000, I mean, these are big cliff edges in the tax system. And it’s not just about paying less tax. It’s about making it easier for people to navigate.

Nigel Huddleston
There will always be tax. As the tax person, I’m never going to be the most popular person, but I can tell you we do want to try and simplify where and when we can. The challenge is whenever there’s a, quote unquote, cliff edge or a margin, there’s always somebody just the other side of that at that level. And that, I’m aware, always causes some complications. But even when we increase the threshold, there’ll be other people this side of the new threshold. So, you know, you never get rid of those things. We just sometimes move it about. But it’s important that we always abide by that principle of making it fair, easy, simple. And you’ve seen that in multiple fiscal events. But we do recognise there are some challenges, some of the points that you’ve raised. We’ve made some changes over the last few years and we’ll continue to make changes with, for example, with HICBC, the child benefit challenges with . . . we’ve tried to simplify ...

Claer Barrett
That’s the high-income benefits charge. Even the name is complicated.

Nigel Huddleston
I’ve been at the Treasury now just for three months, and I’ve already got all the acronyms and, yeah. So sorry, for any listeners that I’m trying to make sure that I explain them as much as I can, but indeed, that’s a challenge there. But the difficulty is in so many aspects of the tax system, we need to look at it as a whole, because there are sometimes anomalies. But if we corrected it, for example, some people proposing the abolition of HICBC, that would be a fundamental change in the principle of the tax system, which is based around individual tax payments at the moment versus families. There would be some real challenges there. But we do recognise and we are trying to smooth out these anomalies. It isn’t trying to get them out of the tax system.

Claer Barrett
Now, your party has, perhaps surprisingly, raised taxes, for buy-to-let landlords, for second homeowners, investors receiving dividends or selling shares at a profit. I mean, to sum up, wealthy Conservative voters, and a lot of those kinds of voters would greatly appreciate cuts to inheritance tax, which have been speculated about very widely in the media. How will you balance these calls against the needs of younger people who might be listening to our podcast?

Nigel Huddleston
A really important point. And you’ve kind of almost answered your own question there. Because the tax system does need to be fair. It needs to be simple as possible, but it needs to be fair, it needs to be balanced. So there’s a lot of calls. In fact, we had a Westminster Hall debate in Parliament just last week on inheritance tax. And there’s a lot of debate about taxes on wealth. But we do tax wealth, we just don’t have a wealth tax. And some of the measures that you mentioned, you know, inheritance tax and capital gains tax and so on, they actually do impact on wealth and when assets, you know, enhancing value, they are taxable. And it’s a matter of balance. We want to make sure that we’ve got a progressive and fair tax system where those who’ve got the broadest shoulders carry the greatest burden. And that’s been an underlying principle of our tax system for a very long period of time, but not to do so in a penal way.

Claer Barrett
Now, something that younger listeners in particular are interested in is what the future might be for help with housing. We’ve had, of course, in the past had stamp duty cuts help to buy just now, sadly coming to an end. But one area where younger investors saving for their first home have been caught out is, of course, the property price cap on the lifetime ISA. For the under-40s who start saving for a property, prices so if you want to buy a property that’s valued at more than £450,000, you then can’t access your money without paying a penalty. Now, this is something that many of the companies that I write about offering these products have been lobbying your office to have a look into. What’s your view?

Nigel Huddleston
Yeah, the lifetime ISAs can be really, really important vehicle to help people on the housing ladder and the vast majority of people across the country, that is more than enough for the average of first-time house. Now, we do recognise that in London and certain other very expensive parts of the country, there’s differences, but it will still really help. That we do understand that there are some pockets of the country where that’s not enough, and we’re always listening and open to ideas and as I said, always keep tax under review. But that £450,000 is pretty high already.

Claer Barrett
Mmm. I mean, certainly when the policy was introduced it was pretty high. But it’s like many of these tax thresholds and the problem with the fiscal drag, it’s never increased with inflation. In fact, the first article for the Financial Times I have raised about the lifetime ISA. That was one of the key questions I put to the Treasury. Will you review this price cap in line with inflation? And funnily enough, the person in your job at the time gave me exactly the same answer. So we’ll keep tax policy under review. But with the huge number of people who are finding that these accounts no longer work for them, it’s fine that they don’t get the bonus if they want to take their money out. That’s fair enough. But to actually lose around 6 per cent of their savings that they’ve worked so hard to save up, it’s that not sending the wrong message to savers. We’re going to penalise you for trying to achieve the dream of property ownership rather than help you get that.

Nigel Huddleston
Well, (inaudible) the vast majority of people that 450,000 limit works very well. But I really wouldn’t be . . . I don’t want to be flippant about when we say we keep tax policy under review, because we genuinely do. In fact, actually we change it quite a lot. Some people say too often because we do want to be understanding of anomalies and we want to change and reflect circumstances. But that goes for both the need to raise taxation, but also where it’s going. And as I’ve mentioned a few times, you know, the reality is that the world has gone through very, very difficult times where the level of taxation has had to be higher out of necessity than we would desire. That restricts options for flexibility sometimes and goes against our instincts. Believe me, as a Conservative MP, the last thing I want to do is increase taxes and our instincts are to reduce them. But out of necessity, every now and again, we have taxes higher than we would desire. But then out of will we reduce them whenever we’ve got the opportunity to do so.

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Claer Barrett
Well, very interesting points there made by Nigel Huddleston. But now I’m going to walk back to the Tube station, go to the FT studio where I’m going to talk about what Nigel had to say with my FT colleague, Lucy Fisher. You might know her as the presenter of the FT’s Political Fix podcast.

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So back in the FT studio. I say welcome Lucy, but you use the studio as often as I do.

Lucy Fisher
Well, I do, Claer. But I’m thrilled to be making my debut on Money Clinic, so thanks very much for having me.

Claer Barrett
Well, thank you. Now we’ve played you some recordings of what the minister had to say. What’s your first take?

Lucy Fisher
Well, I had two sort of political thoughts about what he was saying, Claer. I think it’s fair for him to have made the point that, you know, the government has rolled out a lot of help for people in recent years, you know, and there’s now money that needs to be paid back. The £350bn of Covid debt and 100bn of supports during the cost of living crisis. What’s slightly gets my goat is that at the time of those schemes being unrolled, that amounted to that big debt pile, it was never explained that this was going on the state’s credit card and we need to pay it back. And it’s a gripe of mine that now they’re making the argument, but they didn’t at the time that this was money that would have to be paid back. They just wanted to get all the political credit for it. And the other point I thought was really great that you raised with him just how much Tories have raised taxes, not just for the country at large. And we know that the tax burden is at a 70-year high. But for some of the wealthiest people, the core Tory vote: the buy-to-let landlords, second homeowners, investors. And I thought, you know, that to me again, really hearing that list that you read out to Nigel Huddleston just reminded me of why there are so many plotters on the right flank of the Tory party who want to get rid of Rishi Sunak and want a much more radical tax cutting, what they see as true blue, red meat, Conservative administration in power.

Claer Barrett
They’re not the only ones, of course, who are clamouring for tax cuts. The National Insurance cut that they’ve put through that’s prioritised working people, which fits with that narrative. The Autumn Statement also gave a lot of very valuable tax breaks to businesses. But when it comes to the budget in March, what groups might see it benefit then?

Lucy Fisher
Well, we know it’s going to be like the Autumn Statement, a very political fiscal event. This being an election year, we expect the government could go as late as 2025 January next year for an election. But I don’t think many people are expecting that. I think they’re going to want to give another very broad-based tax cut. There is talk about doing another reduction to National Insurance for the very justification that the Minister was making to you, that, you know, it prioritises working people perhaps more than income tax does. However, you know so far that tax cut, the way it was announced in the Autumn Budget back in November, hasn’t moved the dials for the Conservatives. And in fact, it’s been a source of real alarm for Tory strategists that they spent £9bn on this big tax cut and no one seems to be giving the party credit. So I think they will be doing a lot of polling this month and next month, focus groups to understand if people kind of are seeing in their pay packet now that it’s finally been introduced this month, that reduction and if they do see some kind of polling bounce, I think that another National Insurance cut could be in the offing. Income tax cut is another option. And again, that has an ease of the comms around it saying, you know, one pence off your income tax is, I think, easier for many people to understand than the National Insurance.

Claer Barrett
Nobody understands the National insurance.

Lucy Fisher
Well, I do. I thought you did. I trusted you to understand it.

Claer Barrett
OK. Nobody apart from me and people in HMRC and possibly few in the Treasury. But it is a form of income tax. And people don’t really understand that. But also the average worker, they’re seeing a benefit to the tune of £29, £30 a month in their pay packets. Now, I did this poll with my Instagram followers at the weekend and said: what would you rather have — £29 in your pocket every month or the ability to get a doctor or dentist’s appointment when you need one? And three-quarters of people said doctor and dentist. Because that’s what they’re having the most trouble with. They don’t value £29, but they would value some proper real sorting out of the crisis in the NHS.

Lucy Fisher
Yes, I thought it was really striking, the findings of your poll, and that sort of seems to match other surveys. There was a big one conducted in December by Global Council that found almost two-thirds of Brits think any available fiscal headroom should be used to improve schools and hospitals, compared to just over a quarter who say it should go towards cutting income tax. So I think that is a replicated sort of finding across the board. To my mind, the slight awkwardness is it’s not really either tax continuing at the same rate and public services improving. It’s taxes need to increase to have more money to plunge into public services. But I’m not surprised that people are saying that to you and to other people doing this kind of polling because, you know, we know that public services are under a real sense of strain. And as the OBR chief Richard Hughes said earlier this month, you know, the government’s spending plans for beyond next year are worse than a work of fiction, because, you know, people who write fiction actually have the courtesy of writing something down. And there’s just nothing there for the state sort of plan. So I think It is a worrying time for thinking about public services and the quality the people are receiving.

Claer Barrett
£29, of course, doesn’t go as far as it used to. But what about the risk of tax cuts? It’s been a few warnings in the offing this week.

Lucy Fisher
Yeah, really interesting, isn’t it, that the IMF has stepped in and some people think overstepped the mark by making this warning to Jeremy Hunt.

Claer Barrett
And I should just say the IMF, that’s the International Monetary Fund, very big, very influential group of international economists saying, hang on a minute, Jeremy.

Lucy Fisher
Hang on a minute, Jeremy. No tax cuts for you. I’m being quite didactic to dictatorial, perhaps in urging him to seek fiscal consolidation, spend any headroom on spending rather than giveaways. But I think them having waded in and as you make clear, such an influential group of economists, I think there is a cause for alarm in Tory circles. You know that if they did, it go for big tax cuts. You know, the fear of God is in them that could spark, you know, another spooking of the markets like we saw with the disastrous mini-Budget of October 2022, which is where a lot of Tory MPs think that their woes really began in the most kind of recent phase. That’s the moment they lost the general election many of them say to me.

Claer Barrett
At the moment some Conservative ministers saw that the ability to pay their mortgages would become much harder in future. Now, the Tories clearly haven’t made their minds up yet about where any tax cuts might fall, as we heard in that interview, or how large they might be. But Lucy, tell us a little bit about what the opposition parties are thinking on this theme of tax.

Lucy Fisher
Well, it might sound a bit rich. But the Conservative party are really trying to build their own pitch to the public as being about tax cuts and cutting immigration. And by turns, their big attack line against Labour is that Labour is the party that’s going to plan a massive tax bombshell on you. And so I think Labour are very, very alive to the danger of that attack line. It’s typically what people associate with the Labour party, even though as we’ve just discussed, we’re in a very high tax Conservative administration by historical standards at the moment. So Labour, keen to keep the target on their backs as small as possible, they have largely in many ways tracked what the Tories have pledged when it comes to tax. And this week there’s been a big intervention from Rachel Reeves, the shadow chancellor, pledging that Labour would not raise corporation tax from its current state of 25 per cent in its entire first term of a Labour government. In other mood music around the way that Labour is intensely relaxed about people getting filthy rich as long as they pay their taxes. To hark back to Peter Mandelson’s famous phrase during the New Labour years. Rach Reeves has also signalled that they will not reintroduce the cap on bankers’ bonuses, despite having criticised the Conservatives for abolishing that cap only a few months ago. So I think there is this sense that Labour want to make clear they’re not going to be a massive tax rising administration. However, the big but is, you know, that is what they say pre-election. There is always with any incoming government of any stripe, the ability once they get through the door to say, oh, well, now we’ve seen under the bonnet, now we’ve been through the books, things are worse than we expected. And I think many people think that whatever Labour say ahead of the election, there are potentially going to have to raise taxes in some form that’s bigger than they’ve indicated so far because of the state of the public finances and what they’ve indicated they want to do regarding public services, which is not implement massive cuts.

Claer Barrett
And we wait to see what she will say about reinstating the lifetime allowance on pensions, which only affects the wealthiest listeners of Money Clinic but nevertheless is causing all kinds of headaches and some positive comments made about wanting to simplify the ISA regime, which, again, is something that Conservatives have also promised they’ll do. So hopefully whoever wins will get better ISAs. This brings me to my last point, Lucy. Younger voters and how much the political parties might want to please them as opposed to other groups. Now the classic line is they don’t vote as much as the older generations, but how important will it be to have more progressive tax policies or tax cuts that directly benefit them?

Lucy Fisher
Well, I think it’s really important from a sense of democratic engagement and the sort of the social contract, that there is a degree of intergenerational fairness and a sort of rebalance that is achieved. And I a couple of weeks ago interviewed the chair of the Electoral Commission, who warned that it was a very worrying trend they have been seeing of young people not bothering to vote and increasingly asking across the UK, what’s the point of elections? And to me, that is a symptom of the way that people have been younger people. And when I say young, I’m not just talking about teenagers in their 20s but 30s, early 40s now, the sort of the problems they’re facing economically was getting on the housing ladder, young parents. And of course, you talked with some minister about the cliff edges that exist in child benefit payments. You’ve got, you know, the student debt repayment, a very sort of punitive rate, many young people would argue. These are tough times for younger people. But when you also look at the polling of how it breaks down between the parties, the split by age, that’s also striking. And that’s something we’ll be talking more about on Political Fix with our panellists. A poll published by YouGov showed that fewer than 15 per cent of under-40s will vote Conservative, while more than 55 per cent in that age category are leaning towards Labour. So you might also read from that, that the Conservatives may think that the youth are a bit of a lost cause for them, and they need to shore up their core vote among older generations.

Claer Barrett
Mmm. Well, it remains to be seen what will happen. But thank you very much, Lucy Fisher, for coming in. Stay tuned to the Political Fix podcast. It’s released every Friday on the FT’s channel, and I’m sure that we’ll have you on the podcast again before the March budget is out.

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That’s it for Money Clinic this week, with me, Claer Barrett. And we hope you found this episode useful. If you did, spread the word and leave us a review. We’re always looking to chat with people about their money issues for the show, so if you’re interested in being part of a future episode and want some expert money advice, then email us. Our address: money@ft.com. You can also follow me on Instagram. I’m @ClaerB.

Money Clinic was produced by Tamara Kormornick and Persis Love. Sound design was by Breen Turner and our editor is Manuel Saragossa. You heard original tunes this week by Metaphor Music, and Cheryl Brumley is the FT’s global head of audio. And finally, our usual disclaimer. The Money Clinic podcast is a general discussion around financial topics and does not constitute an investment recommendation or individual financial advice. For that, you’ll need to find an independent financial adviser. That’s all in the small print for now. We’ll see you back here next week. Goodbye.