Rishi Sunak vowed to start slashing the tax burden as he teed up the Autumn Statement in a speech today.
Two days before the crucial financial package, the PM insisted the easing of inflation means that the government can reduce taxes.
He said the ‘next phase’ was about to begin – with curbs on income tax and national insurance on the table as the Tories desperately try to claw back ground ahead of a general election next year.
‘Now that inflation is halved and our growth is stronger, meaning revenues are higher, we can begin the next phase, and turn our attention to cutting tax,’ he said.
‘We will do this in a serious, responsible way, based on fiscal rules to deliver sound money, and alongside the independent forecasts of the Office of Budget Responsibility.
‘And we can’t do everything all at once. It will take discipline and we need to prioritise.
‘But over time, we can and we will cut taxes.’
The intervention comes after Jeremy Hunt fueled speculation that the tax burden – running at a post-war high – will be trimmed.
Business levies are expected to be the main focus after the Chancellor was given wriggle-room by better-than-forecast revenues. Mr Sunak said this morning that the government’s ‘priority has always been the supply side of our economy’.
Mr Hunt and Mr Sunak are understood to have put curbing inheritance tax on hold amid concerns the move could be used as a political weapon by Labour.
In other developments today:
- Mr Sunak laid out five ‘five long-term decisions’ he was taking for the economy and public finances – reducing debt, cutting tax, building sustainable energy, backing British businesses and delivering world-class education;
- The PM said tax will be a major dividing line with Labour as he looked ahead to the election;
- The Department for Work and Pensions has sent another signal that benefits will be uprated by less than the September inflation usually used.
In a speech two days before the crucial financial package, Rishi Sunak will insist the easing of inflation shows that the UK has finally turned a corner
The IFS previously calculated that the tax burden is heading for its highest level since the Second World War
The PM was boosted last week by figures showing the rate of inflation fell to 4.6 per cent in October, down from 6.7 per cent in September
Mr Sunak said: ‘I promised you we would have inflation. We took the difficult decisions and we have delivered on that promise.
‘So now you can trust me when I say that we can start to responsibly cut taxes.
‘And we will now move to the next phase of our plan to grow our economy by reducing debt, cutting tax and rewarding hard work, building domestic sustainable energy, backing British business and delivering world-class education.’
With tax thresholds frozen, rampant inflation and rising earnings have been sending government revenues soaring as people are dragged deeper into the system.
For months Mr Hunt and Mr Sunak have been pouring cold water on the idea of tax cuts this year, warning that it could fuel upward pressure on prices.
However, last week the headline CPI rate dropped sharply to 4.6 per cent, meeting the PM’s target of being halved this year – although it is still more than double the Bank of England’s target.
Ministers were buoyed by forecasts from the Office For Budget Responsibility (OBR) on Friday.
Those showed there was fiscal headroom of up to £30billion, enough for a cut in the headline rates of income tax or NICs.
Despite the marginally better fiscal position, the government’s finances are extremely strained and the economy is predicted for flatline for years to come. Many Conservatives argue that tax cuts now will help stimulate growth.
Mr Sunak dropped heavy hints that business taxes will be the major move on Wednesday.
‘I’m not going to pre-empt the decisions that the Chancellor will make, other than to say that we will approach that task seriously and responsibly,’ he said.
‘We can’t do everything at once, as I said. We will prioritise, we will be disciplined and our focus is very much the supply side and growing the economy.
‘We believe very much in an economy where the Government is doing less and allowing people to keep more of their own money.’
Mr Sunak also heralded action to get more Brits into the workforce, saying it is a ‘national scandal’ that around two million working-age people were not in employment.
‘We believe in the inherent dignity of a good job, and we believe that work, not welfare is the best route out of poverty,’ he said.
‘Yet right now around two million people of working age are not working at all. That is a national scandal, an enormous waste of human potential.
‘So we must do more to support those who can work to do so, and we will clamp down on welfare fraudsters because the system must be fair for taxpayers who fund it.’
Summarising his plan, he said: ‘Work for those who can, a generous safety net for those who can’t and tougher penalties for fraudsters.
‘That is what a compassionate Conservative welfare system looks like.’
The Autumn Statement has been agreed and was signed off last night before being submitted to the OBR for inspection.
Treasury officials have been examining how feasible a 1p or 2p cut would be ahead of Wednesday’s statement. They have ruled out relaxing the frozen thresholds around the levies.
Cutting income tax by 2p in the pound would cost £13billion to £14 billion a year and save UK households around £450 annually on average.
It would also give the Tories a much-needed boost ahead of the election, expected to be in autumn next year, as it trails Labour by 20-plus points in the polls.
The Chancellor and PM have been under growing pressure from backbench MPs to slash duties, with the tax burden on course to reach its highest level for 70 years.
Mr Hunt told Sky News yesterday: ‘Everything is on the table in an Autumn Statement.
The PM’s intervention comes after Jeremy Hunt (pictured yesterday) fueled speculation that the tax burden – running at a post-war high – will be trimmed
ONS figures have shown the UK economy grinding to a halt over the course of the year
‘I’m not going to talk about any individual taxes because that would lead to even more fevered speculation.
‘What I will give you is a general view about tax. It’s too high. A Conservative government wants to bring it down because we think that lower tax is essential to economic growth… I want to bring down our tax burden. ‘It’s important for a productive, dynamic, fizzing economy that you motivate people to do the work, take the risks that we need.’
However, he stressed that ministers may choose to defer any cuts until the Spring Budget, saying that ‘Rome wasn’t built in a day’.
He added: ‘I actually want to show people there’s a path to lower taxes. But we also want to be honest with people – this is not going to happen overnight.’ Inflation fell to 4.6 per cent in October, meaning ministers have met their target of halving it by the end of the year. Some MPs believe it provides more cover to bring forward tax cuts. However, Treasury officials believe cuts to personal taxation could cause inflation to spiral again and threaten the goal of driving it down to 2 per cent.
Speaking to the BBC, Mr Hunt was asked if he ‘regrets’ the high tax burden. He said: ‘In 2019, no one expected a-once-in-a-century pandemic or energy shock like we had in 1970s, and we had to react to that and I don’t pretend I didn’t have to take very difficult decisions.’