UK consumers are set to be “more careful with their spending” this year regardless of any tax giveaways in today’s Budget .
KPMG chief economist Yael Selfin told an Abta Travel Finance Conference in London last week: “We expect some tax cuts in the Budget. But I would be cautious on how much to expect the Chancellor to support spending. Debt levels are elevated. There is not much room for the government to spend.”
A general election is due by January, with a November date most likely but May 2 a possibility to coincide with local elections.
A senior industry lobbyist at Westminster told Travel Weekly: “We’ll be studying the Budget for signs of when the election might be.”
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Selfin warned the outlook for the next government would be poor, saying: “Policies will be very much restrained by the UK’s debt.”
More positively, she noted: “Job security is relatively high – we don’t expect unemployment to go up too much. We also see wage growth overtaking inflation.”
However, Selfin said: “The bad news is cuts in interest rates would not impact households immediately. Mortgages are fixed for two to five years and at least a third of mortgage holders will have to remortgage at a higher rate, so there is more tightening to come for households.
“The other not great news is we had excess household saving post-pandemic and that is depleted now. People are likely to be more careful with their spending this year.”
She also warned of “surprises on the geopolitical side that we can’t bake into our forecasts”.
Chancellor Jeremy Hunt was reportedly looking at a 1p-2p cut in national insurance or income tax in the Budget. However, even with any cuts, UK tax revenues were set to remain at their highest since the Second World War and to rise annually up to 2028-29.
Hunt was reported to be considering a rise in Air Passenger Duty for business class flights, removing tax breaks from holiday lets, a windfall levy on oil and gas producers and taxing wealthy ‘non-domicile’ citizens as well as cuts in public spending to pay for tax cuts.
However, the Chancellor’s options have been constrained by deteriorating economic forecasts, with the head of the Office for Budget Responsibility describing the government’s future spending plans as “fiction”.