UK's Hunt set to help flagging Conservatives with pre-election tax cuts


By William Schomberg

LONDON, March 5 (Reuters) - British finance minister Jeremy Hunt is expected to offer tax cuts to voters on Wednesday despite the fragile state of the public finances, in an effort to revive the bleak election prospects of Prime Minister Rishi Sunak's Conservative Party.

The Conservatives are lagging far behind the Labour Party - by the most in nearly 50 years, according to one opinion poll - and many of its lawmakers see Hunt's budget speech as a last chance for a comeback before an election later this year.

In the face of Britain's heaviest debt burden since the 1960s and an economy that went into recession last year, Hunt has played down calls from within his party for major giveaways.

Mindful of how Sunak's shortlived predecessor Liz Truss sent markets into a tailspin with her sweeping tax cut plans only 18 months ago, he will stick to his plans for less new borrowing.

But Hunt will also say that the fall in inflation from a peak of more than 11% to 4% means "we can now help families with permanent cuts in taxation", according to excerpts of the speech he is due to give in parliament at about 1230 GMT.

The Times reported on Tuesday that he would cut social security contributions by two percentage points, putting an average of 900 pounds ($1,145) a year into the pockets of workers when combined with a similar move from last November.

He is also expected to announce a latest extension of a freeze in fuel duty.

The 15 billion-pound cost of those two new measures would however be more than the 13 billion-pound "fiscal headroom" that The Times said was available to Hunt.

To make his sums add up, Hunt is expected to extend by one year a windfall levy on energy firms' profits and possibly tighten the rules on "non-dom" people living in Britain on their income abroad - both measures proposed by opposition Labour.

He also plans to create a new tax on vapes, media have said.

Promises of future spending cuts could also help pay for tax cuts now, but analysts and even the head of the government's budget watchdog have criticised the lack of detail about where he might feasibly cut already stretched public services.

Several cities and towns have effectively gone into bankruptcy, the backlog of cases in courts hit a record high last August and a think tank found last year that performance in eight out of nine major public services had declined since 2010.

"This budget should be the final chapter of 14 years of economic failure under the Conservatives that has left Britain worse off," Rachel Reeves, Labour's would-be finance minister, said. "The country needs change, not another failed budget or the risk of five more years of Conservative chaos."

Hunt will seek to justify his tax-cutting by saying it will help to speed up Britain's slow economy.

"We do this not just to give help where it is needed in challenging times," he was due to say. "But because Conservatives know lower tax means higher growth. And higher growth means more opportunity and more prosperity."

Many Conservative lawmakers are angry that Britain's tax burden is on course to be its highest since World War Two, contributing to the first post-war contraction in living standards between elections.

But the International Monetary Fund advised Britain in January not to cut taxes due to high levels of public debt and the growing demands on services.

Many analysts say any tax cuts now would pale by comparison with the impact of the Conservatives' not raising tax thresholds in line with rampant inflation. They also expect further tax increases after the next election as demands for public services and investment continue to grow.

($1 = 0.7862 pounds)

(Editing by Catherine Evans)

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