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We have a new Chancellor – so what will Nadhim Zahawi and the Prime Minister want to do?

Short-term measures and vote winners are likely to be at the top of agenda, including:

– Grab a headline quickly and call an Emergency Budget before the summer recess.

– Rishi Sunak had already confirmed a 1% cut to the basic rate of Income Tax to 19% in April 2024, Zahawi will want to bring forward the cut to April 2023 and increase it to 2%. (Note that the 1% cut was projected to cost the Government £11 billion).

– An additional 5p reduction in fuel duty – Sunak had already cut fuel duty by 5p in his Spring Statement in March but that benefit quickly disappeared through rising fuel costs. A further overnight 5p cut would help families and would be an immediate win.

– The elephant in the room – abolish the 1.25% National Insurance increase (Health and Social Care Levy) for basic rate taxpayers and backdate the cut to 6 April 2022. The NI threshold increase taking effect today does not go far enough in my view.

– Increase allowances and tax thresholds in line with inflation – a stealth move by the former Chancellor in March 2021 to freeze all tax allowances until April 2026, projected to raise £21 billion. With hindsight, given rising inflation and the cost-of-living crisis, the move was desperately flawed, and the new Chancellor would get a win over his predecessor by reversing this measure and restoring allowances to rise at the appropriate level.

– Cancel the planned increase to CorporationTax – another Rishi Sunak pre-announcement, to increase Corporation Tax to 25% from 1 April 2023. It was expected that the former Chancellor would not have gone ahead with the full increase and it’s more than likely now that Nadhim Zahawi will step into to peg back the increase to 22%.

– A temporary reduction to VAT to 17.5% or even as low 15% (Alistair Darling did this in 2008) would be much heralded, but the cost to the Government would be eye-watering and the economists will be rightly concerned the fiscal stimulus will only make inflation worse.

Lots of potential giveaways… but these are desperate times for the Government.