Jeremy Hunt is expected to unveil a 2p cut to National Insurance in Wednesday’s Budget in a move that has sparked speculation that an early election could be called.
The Chancellor will announce that he has chosen to cut National Insurance rather than income tax, saving workers £900 a year when combined with the cut announced last autumn.
He is expected to set out a number of revenue-raising measures to help pay for the cut, including scrapping or scaling back the non-dom scheme.
There will be a new levy on vapes, tax reliefs for the owners of short-term lets will be scrapped, and the windfall tax on oil and gas giants will be extended by a year.
Downing Street made the unusual decision to confirm the National Insurance cut, likely to be a centrepiece of the Budget, 24 hours ahead of the statement.
The move raised questions over whether the Government had a surprise up its sleeve, as Labour fuelled speculation that Rishi Sunak was preparing to call an election in May.
Lord Mandelson, the architect of New Labour who helped Sir Tony Blair sweep to power, said such a move could help the Tories avoid a huge defeat, while Jonathan Ashworth, the shadow paymaster general, made a public bet that an election would be held in May.
Mr Ashworth agreed the £10 bet with Kay Burley, the Sky News presenter, and said: “I think everything the Conservatives are doing in terms of both their advertising on social media and the political positioning suggests to me that May is their preferred choice.”
Speaking on his podcast, How To Win An Election, Lord Mandelson said: “The Conservatives… have an incentive to call an early election, partly because they think they might catch Labour on the hop.
“But secondly, it would put an end to the sort of endless Tory-Farageist soap opera week in, week out, which I think is having a depressing effect on their standing in the polls and in the view of the public.”
On the same podcast, Lord Finkelstein, his his co-host, said: “I’ve always thought that it was the right thing to do to hold an election in May, but it’s become much, much less likely as we’ve moved closer.”
It is understood that the Government will bring forward legislation next week to ensure that the National Insurance cut comes into effect in April.
With the Bill enabling migrants to be deported to Rwanda also expected to pass this month, it could pave the way for a general election to be held on May 2, when local elections are planned.
The decision not to cut income tax in the Budget would allow the Tories to present it as a manifesto pledge at the next election. One idea is a promise to reduce the basic level from 20p to 16p by the end of the decade, which Mr Sunak promised when he ran for the Conservative leadership.
Tory sources played down speculation of a general election, pointing to Mr Sunak’s previous comments signalling a vote in the second half of the year. They insisted the National Insurance cut was a non-inflationary move that rewarded workers.
