Jeremy Hunt has tried to restore the Tory party’s reputation for low taxes ahead of the election by cutting National Insurance for 27million workers, including 2.4m in Scotland.

The Chancellor used his Autumn Statement to announce the basic employee rate would fall from 12 to 10% in the New Year as part of a slew of measures to boost the economy.

The cut will be worth around £340 a year to the average worker and applies UK-wide.

However the saving will be more than offset by income tax hikes for many workers being lifted into higher tax brackets by their wages going up while tax thresholds are frozen at both Westminster and Holyrood, a process known as “fiscal drag”.

The Office for Budget Responsibility (OBR) also said the UK tax burden would still rise in each of the next five years, reaching a 70-year high of 37.7% of GDP in 2028/29. 

The watchdog downgraded the forecasts it made in March on the economy, predicting slower GDP growth in the next three years and an average of just 1.5% a year to 2027.

It said inflation would take a year longer to fall back to the Bank of England target of 2%, only doing so in mid-2025, meaning high interest rates for many mortgage holders. 

Living standards, measured by real household disposable income per person, are expected to be 3.5 percentage points lower in 2024/25 than before the pandemic, representing “the largest reduction in real living standards” since comparable records began in the 1950s.

Interviewed after his Commons speech, Mr Hunt said he did not know if further tax cuts would follow in the spring budget, but he would “lighten the tax burden” if he could.

He said: “We have made a start. I’ve never pretended we were going to get there in one go.

“But what we can say is that, now we’ve halved inflation, the economy has turned a corner, we can focus on long-term growth, raising incomes and salaries for families up and down the country.”

Earlier, he told MPs the 110 measures in his autumn statement would boost growth by helping employees, the self-employed and companies.

Emergency legislation will be used to cut employee National Insurance levelled on earnings between £12,570 and £50,270 to 10% from January 6.

He also abolished Class 2 NICs for the self-employed and cut the rate of Class 4 NICs from 9 to 8% from April, saving 2m self-employed people an average of £350 a year in total.

Announcing the changes, Mr Hunt said high employment taxes “disincentivise the hard work we should be encouraging”.

Paul Johnson, director of the Institute for Fiscal Studies think tank, said the NICs cut would undo “only a small fraction of the huge tax increase resulting from the freezing of income tax allowances and thresholds”, and would leave average earners “slightly better off” while low earners and high earners “will still be worse off”.

The Chancellor also raised the state pension in line with the 'triple lock', up  8.5% in line with average earnings, a change worth up to £900 more a year from April.

Universal Credit and other benefits willl rise by 6.7% in the spring, while the minimum wage will increase from £10.42 to £11.44 an hour and apply to all workers aged 21 and over.

After a huge row over a 10.1% rise in alcohol duty in the last budget, Mr Hunt froze the levy until at least August 2024.

However he caused fresh controversy by announcing plans to move 700,000 long-term sick people into work through 18 months of “intensive support” and treatment, followed by the threat of cutting off their benefits if they refuse mandatory work placements for six months.

Dr Sarah Hughes, chief executive of the mental health charity Mind, called it "a backwards step for the UK, which people with mental health problems will feel sharply".

The Chancellor said a tax break known as full expensing, which allows firms to cut their bills if they invest in new equipment, would be the “biggest business tax cut in modern history”.

He announced £80m for new Levelling Up Partnerships in Scotland, and the reallocation of £20m from the Inverness & Highland City Regional Deal to fund essential landslide infrastructure improvements for the lifeline Corran Ferry service south of Fort William.

Responding for Labour in the Commons, shadow chancellor Rachel Reeves said: “The Chancellor claims that the economy has turned a corner, yet the truth is under the Conservatives growth has hit a dead end. What has been laid bare today is the full scale of the damage that this Government has done to our economy over 13 years.”

Liberal Democrat leader Sir Ed Davey said: “This autumn statement was a Hunt hoax. Buried in the small print is a massive stealth tax raid that will drag millions into paying a higher rate in the coming years.”

The Scotland Office said changes in the statement meant an extra £545m for Holyrood's budget under the Barnett funding formula over this year and next.

The Fraser of Allander Institute said £230m of the Barnett money stemmed from NHS pay awards and planning in England, with £280 next year because of business rate reliefs in England which the Scottish Government is now under pressure to mirror.

SNP finance secretary  Shona Robison said the Chancellor’s statement, which will form the basis of her own budget next month, offered a “worst case scenario” for Scotland.

She said: “The Chancellor’s actions failed to live up to the challenges we are facing as a nation, while not doing enough to help those on the lowest incomes. 

“The cut to National Insurance shows the UK Government has the wrong priorities at the wrong time, depriving public services of vital funding.” 

Green MSP Maggie Chapman said: “Even by Tory standards this was a deeply unimpressive and unambitious autumn statement. The Tories are continuing to fail people and planet, choosing instead to support their wealthy friends and punish the most vulnerable.”