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Rishi Sunak, UK prime minister, has promised there is “more to come” on pre-election tax cuts, as the government left open the possibility of two further fiscal events between now and polling day.
“Our priorities are very clear. It is controlling spending and welfare so that we can cut people’s taxes,” Sunak told broadcasters on Friday on a visit to Eastleigh in Hampshire.
Chancellor Jeremy Hunt cut the main rate of national insurance from 12 per cent to 10 per cent in his Autumn Statement last year at a cost of about £10bn, but is looking to go further in his Budget on March 6.
Hunt on Thursday held open the possibility of tax cuts — and an Autumn Statement before the general election expected later this year — while at the World Economic Forum in Davos.
He told reporters: “The economies that are growing faster than us — North America, Asian economies — tend to have lower taxes . . . So that’s the direction of travel we’d like to go in, but it’s too early to know the extent to which we’ll be able to do it.”
Tax levels are at a 70-year high and the overall tax burden is still rising, but asked about Hunt’s comments, Sunak said: “The plan is working, because we are already doing it — stick with it and there is more to come.
“And the fact that our plan is working, that we are now able to start cutting taxes because of our management of the economy, should give people that confidence that the future will be better for them.”
Hunt said on Thursday that he did not yet have the economic and fiscal forecasts that would be needed to frame his March Budget, but he believed that low-tax economies were “more dynamic and more competitive”.
Hunt added that the question of giving an Autumn Statement on top of the March Budget would hinge on when Sunak decided to hold the general election.
One senior government figure said “squeezing in” an Autumn Statement between the next Conservative party conference and a November election would allow the party to highlight tax cuts at three successive fiscal events.
There are auspicious precedents for such a move: John Major, who won an unexpected election victory in April 1992, announced a vote the day after his chancellor Norman Lamont introduced a 20p income tax rate in his March Budget.
Hunt in November unveiled cuts to business and personal taxes of about £20bn in an effort to bolster growth, but that failed to stop a steady increase in the UK’s projected tax burden that results from personal tax thresholds being frozen.
With the ruling Conservative party trailing Labour by about 20 points in the polls, the chancellor is under intense pressure from within party ranks to unveil fresh cuts to individual taxes ahead of the election.
The tax-cutting measures outlined in the November Autumn Statement, alongside other budgetary decisions including on welfare spending, left the chancellor with £13bn of “headroom” against his crucial fiscal rule, which requires the ratio of public debt to gross domestic product to be falling in five years’ time.
That could leave Hunt with some budgetary wriggle room for further tax cuts depending on how fiscal and economic forecasts from the Office for Budget Responsibility, the fiscal watchdog, evolve in the coming weeks.
Hunt stressed that he had not yet received the first draft of those forecasts as he prepared for his upcoming Budget, but some economists have pointed to falling interest rate expectations as a tailwind for the chancellor, potentially doubling that headroom depending on how other variables evolve.
Asked whether it would be fiscally responsible to cut taxes further when the UK’s underlying debt-to-GDP ratio is heading above 90 per cent, Hunt said this depended on how the tax reductions were funded.
“If you fund them by significantly increasing borrowing, then you are just sending the bill to future generations,” he said. “But if it’s because of the inherent growth of the economy and you can still see debt falling over the five-year period, then it can be very pro-growth.”
Asked if his priority would be tax cuts for businesses or households, Hunt said he did not draw such a firm line between the two categories, pointing out that the national insurance cut announced in November was expected to boost the workforce and help fill vacancies, as well as easing pressure on families.
“What I can assure you is that we will prioritise economic growth. I don’t make quite the same distinction as you do between business tax cuts and personal tax cuts,” he added.
When it came to the possibility of holding more than one Budget round this year, Hunt said this would depend on when Sunak decided to hold the election and that he did not know what the decision would be.
He said the UK was required to hold two “fiscal events” in a year, adding: “We will see where we get to after the spring.”
A Treasury figure said any such decision would be made by Sunak and his team rather than by Hunt: “It’s entirely a decision for the prime minister when to call an election.”
