Jeremy Hunt set to give motorists £5bn tax break in the Budget

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Jeremy Hunt will on Wednesday give motorists a £5bn pre-election tax break in the Budget, as hopes rise among Tory MPs that the chancellor has mustered enough money to fund a surprise 2p income tax cut.

Hunt is expected to extend for a further one year a “temporary” 5p-a-litre fuel duty cut and again scrap an inflation-linked rise in the levy, according to government insiders. No government has raised fuel duty since 2011.

While that move would be welcomed by Conservative MPs, some believe Hunt will unveil a bigger prize in his March 6 Budget: a headline-grabbing 2p cut in the basic rate of income tax.

Such a move would cost about £14bn a year, but Hunt could just about fund it by shaving £5bn off future public spending, deploying £7bn of the sparse fiscal “headroom” allotted to him by official forecasters, and raising several billion pounds through targeted tax rises.

Hunt is expected to partly fund a personal tax cut — a reduction in national insurance rates is the other option — by cutting spending plans in the next parliament, further squeezing public services which are already under severe strain.

According to Treasury insiders, the chancellor could save £5bn by cutting plans to increase departmental spending by 1 per cent a year in real terms after 2025, reducing the pencilled-in rise to 0.75 per cent. 

“All Conservatives believe the state has a moral duty to leave as much money in people’s pockets as possible,” Hunt said on Sunday. Overall tax levels are currently at their highest level for 70 years.

Hunt has also been examining a host of targeted tax rises affecting “non-doms”, oil and gas companies, airlines, holiday lets and nicotine vapes, all intended to raise several billion pounds more to fund a big personal tax cut.

“Number 10 wants to do income tax — no doubt about it,” said one person…