Jeremy Hunt has dangled the prospect of big tax cuts in his March budget, in what is seen as one of the last opportunities for the Conservatives to claw back Labour’s huge opinion poll lead.
In his first public comments on his budget strategy, the chancellor made clear that only unexpected bad news would prevent him from answering the call from Tory MPs for a substantial giveaway before an expected autumn general election.
Speaking in Davos, where he was attending the annual meeting of the World Economic Forum, the chancellor said: “In terms of the direction of travel we look around the world and we note that the economies growing faster than us in North America and Asia tend to have lower taxes, and I believe fundamentally that low-tax economies are more dynamic, more competitive and generate more money for public services like the NHS.
“That’s the direction of travel we would like to go in but it is too early to say what we are going to do.”
Hunt’s precise room for manoeuvre will only become clear when he receives forecasts for the economy and the public finances in the coming weeks, but the picture has brightened since last November’s autumn statement due to falling inflation and expectations of interest rate cuts from the Bank of England.
However, his remarks go further than he has previously. Just two weeks ago, when discussing the 2% national insurance cut at the centre of his autumn statement, he told reporters: “It’s the start of a process. As chancellor, if I can afford to go further I will. I don’t yet know if I can.”
The chancellor has come under pressure to cut taxes amid forecasts from the Office for Budget Responsibility that they are heading for their highest level since the 1940s. Attempts to repair the damage to the public finances from the Covid pandemic and the energy bill subsidies that followed Russia’s invasion of Ukraine have resulted in a multiyear freeze in tax allowances and thresholds.
After providing permanent tax breaks for business investment and cutting national insurance in the autumn statement, Hunt is expected to focus on income tax in the budget on 6 March. He did not rule out the possibility of a second pre-election package of measures this autumn but said that would depend on the poll date chosen by Rishi Sunak.
“The prime minister hasn’t decided on the date of the election yet, or if he has he hasn’t told me. By law there have to be two fiscal events each year. We will see where we get to after the spring budget.”
One senior Tory MP suggested that Hunt could focus on cutting national insurance. “It went down well at the budget, that message about hard work paying. An NI cut helps working people whereas an income tax cut helps people regardless of where their money comes from. We all recognise that people are too highly taxed just now”.
A Conservative close to the chancellor said Hunt was considering cutting taxes at the budget and again at an early autumn statement before the election. “It would be very powerful to be able to go to the polls having had tax cuts at three successive fiscal events,” they said.
However Hunt is understood to be reluctant to cut inheritance tax before the election, believing it will not have the same broad electoral appeal as reducing either income tax or national insurance. “Inheritance tax is one for the manifesto, if at all,” the source said.
Rachel Reeves, the shadow chancellor, has already indicated that a Labour government would reverse any cut to inheritance tax, arguing it would not “be the right priority”.
“If there is money available for tax cuts, those tax cuts should benefit the majority of working people, not just the 3.7% who stand to inherit money,” she said this week.
Reeves has also indicated that Labour would support any cuts to income tax introduced by the government in the spring budget, as long as they were within her party’s fiscal rules.
“Yes, I want taxes on working people to be lower, I have made no secret about that,” Reeves said. “They are the highest for 70 years. But I wouldn’t do anything that broke the fiscal rules that I’ve set out.”
Hunt said the OBR’s assessment of the public finances for the budget could change right up to the last minute, but added: “I want to be open with you. I do believe the economy would be more successful if we had more competitive taxes.”
Asked whether it was irresponsible to cut taxes when debt as a share of national income was close to 100%, he said: “It depends on how you fund the tax cuts. If you fund them by a significant increase in borrowing then you are just sending the bill to future generations.
“If it is through inherent growth in the economy – and you can still see debt falling over a five-year period – it can be very pro-growth.”
Hunt arrived in Davos early on Thursday by private jet after voting in the Commons on the government’s Rwanda bill.
In his absence, Reeves made a pitch for the support of the assembled business leaders, hosting a breakfast organised by the US bank JP Morgan and talking on a panel about Labour’s supply-side measures to boost growth.
Rishi Sunak reiterated on Thursday that tax cuts were his priority, telling reporters at Downing Street: “Without speculating on future budgets, which as a former chancellor I always preferred prime ministers didn’t do, our priority is to cut taxes when it’s responsible to do so.”
