Jeremy Hunt looks set to make good his promise to cut inheritance tax in the autumn statement next week.
The Chancellor could have more money to spend than initially thought thanks to rising tax revenues and falling borrowing costs.
He’s under pressure from Conservative MPs to cut taxes ahead of a possible general election.
Officials at the Office for Budget Responsibility (OBR) present their forecasts to the chancellor today, to give him an idea of how much “headroom” he has to spend on giveaways.
The Resolution Foundation thinktank has predicted that could it could be as much as £13bn.
Controversially, he is considering making extra headroom by increasing benefits by 4.6%, the current rate of inflation, rather than September's rate of 6.7%.
While this would save the government £2bn, it would hit an estimated 9m households and cost single mothers an estimated £218 a year.
At the same time, Mr Hunt could look to save more money by cutting free prescriptions for benefit claimants in England who are deemed fit to work and do not seek employment.
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Inheritance tax is charged at 40% on a person’s estate above the threshold which currently sits at £325,000.
Married couple can share their allowance, meaning parents can pass on £1 million to their children without any tax being paid.
In 2021/22 estimates suggest that the tax was paid on 37,000 estates at death in 2021/22, which represents less than 5% of all deaths, raising £6.1 billion.
Though if affects only a relatively small proportion of the population, polls suggest it is deeply unpopular.
According to reports, the Chancellor is considering reducing the rate from 40% to either 30% or 20%, with a promise to abolish it altogether in the next Tory manifesto.
The Institute for Fiscal Studies has said abolishing inheritance tax would cost an estimated £7bn a year, half of the benefit of which would be enjoyed by people inheriting estates worth £2.1m or more.
The Financial Times also reported that the Chancellor will hope to make tax breaks for business permanent.
Mr Hunt used the Budget in March to announce a three-year policy of “full expensing” to ensure every single pound a company invests in IT equipment, plant or machinery can immediately be deducted in full from taxable profit.
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Asked about scope for tax cuts during a visit to Bolsover on Friday, Rishi Sunak said: “Well the most important thing economically that’s happened this week is that we met the pledge that I made to halve inflation.
“Now of course I know people are still suffering, they have been, so there’s work to do but that’s an important milestone because inflation is like a tax: it makes everyone feel poorer. It puts the prices of things up, eats into your savings, your pension, and that’s why it was so important to halve inflation.
“I’ve delivered on that because I want to ease the burden on the cost of living for families.
“But that allows us now to see what other support we can provide. For example, this winter pensioners will receive hundreds of pounds of extra support alongside their winter fuel payment to help them with energy bills because we know they’re high.
“But look, this Conservative Government has delivered, we are starting to ease the burden on the cost of living.
“There’s work to do and you’ll hear more about that next week in the autumn statement.”
Sir Keir Starmer said he would wait to see what is in the autumn statement before commenting on any plan to slash inheritance tax.
“We’ll have to wait to see what the government says in its autumn statement. What I want to see is a serious plan for growth,” he told broadcasters during a visit to Scotland.
SNP MP David Linden hit out at the plan to "target the poorest in our society by stripping away free prescription and dental treatment."
He said it underlined "the lack of moral empathy this government has."
“In contrast, in Scotland under the SNP, every person is entitled to free prescriptions while those under the age of 26, or those who are pregnant or nursing mothers, are also entitled to free dental treatment.
“That is because in Scotland, we look after those who need it most despite having one hand tied behind our back.
“With the full powers of a normal independent country, we could go even further.
"Independence is the only way to protect Scotland’s most vulnerable going forward – and build a fairer, more prosperous country for all.”
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