The Prime Minister says that now that inflation has halved from last year’s record highs, he will “start the next phase” of tax cuts – but he leaves the big reveal to the Chancellor on Wednesday.
By Jennifer Scott, political journalist @NifS
Monday, November 20, 2023 1:57 p.m., United Kingdom
Rishi Sunak has promised he will cut taxes now the government has delivered on its pledge to halve inflation by the end of the year.
The prime minister has come under pressure from many in his party to reduce the tax burden – which is currently at its highest level in 70 years – ahead of the next election, and rumors are circulating that such policies could be announced in the fall statement on Wednesday.
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Delivering a speech in north London on his economic plans, Mr Sunak said his “argument has never been that we shouldn’t cut taxes – we can only cut taxes once we get inflation and debt under control.”
And with the trend in inflation – confirmed last week by the Office for National Statistics (ONS) as having fell to 4.6% – it was time for the government to “move to the next phase” of its plan and “focus on reducing taxes”.
The Prime Minister did not reveal the amount of the applicable taxes, but they are expected to be confirmed on Wednesday when Chancellor Jeremy Hunt makes his statement to the House of Commons.
Will the Chancellor be able to lift the gloom? Watch live coverage on Sky News of the autumn declaration from 11am on Wednesday.
During his speech, Mr Sunak celebrated falling inflation – although it remains more than double the Bank of England’s 2% target – saying it showed that “when we take a major economic commitment, we will keep it.
Then turning to the big question ahead of the fall statement, he said: “I want to cut taxes, I believe in cutting taxes. What clearer expression could there be of my philosophy of government than the belief that it is the people, not the government, who make the decisions. better decisions about their money.
“But it’s hard to do it responsibly. We must avoid doing anything that jeopardizes our progress in controlling inflation, and no matter how much we want to, history shows that tax cuts are not automatically profitable.
“And I can’t snap my fingers and suddenly wish away all the reasons why taxes had to go up in the first place – partly because of COVID and Putin’s war in Ukraine, and partly because we want helping people live with dignity in retirement, with a decent pension and good health care that will cost more as the population ages.”
But the Prime Minister added: “Now that inflation has halved and our growth is stronger, which means incomes are higher, we can move on to the next phase and turn our attention to reducing taxes.”
The Prime Minister said the Government “can’t do everything at once” and it would take “discipline” to “prioritize” what should be cut.
However, he promised to make these cuts “seriously and responsibly, based on budgetary rules”, adding: “Over time, we can and will reduce taxes.”
Sunak’s argument has flaws: he’ll have to work hard to win
Well, it was wild. Today, Rishi Sunak seems to have perfected the art of the big, understated speech.
The prime minister announced upcoming tax cuts, outlined the five long-term priorities he will fight for in the election and launched his most aggressive attack on the conservative right’s belief in tax cuts self-financed.
This all took place on a hugely busy political day, competing with the COVID investigation, the CBI annual conference featuring the Chancellor, an AI event with the Deputy Prime Minister on the day where a new foreign aid spending plan was published and the official arrival of Lord Cameron in Parliament. Lords.
At the heart of Sunak’s speech was the argument that, having reduced inflation and debt, everyone can now share in the benefits. One prime minister is – rightly – keen to share some of the credit for Wednesday’s tax cut announcement in the autumn statement.
This is his argument: “We can only cut taxes once we have inflation and debt under control… and official statistics show that this promise has now been kept.”
There are problems with this statement from the Prime Minister. The first is that he has only achieved one of his inflation targets, not both: his government’s other objective is to bring inflation down to 2%, and to 4.6%. it remains very high compared to the standards of the last 20 years.
Second, the debt is not decreasing: in absolute terms, it is increasing. Sunak wants to say, but does not say, that debt is falling as a proportion of GDP, a gesture that counts.
Third, he boasts about growth, saying, “Our growth is stronger.” Certainly, this is stronger than the March budget, but the latest quarterly GDP figures stand at 0.0%, zero growth, and the latest indications from the business world suggest almost zero growth, or even a recession in the coming months.
Instead, what has changed are the circumstances: the election, even at its furthest point, is getting closer, while his colleagues go around in circles on a whole host of issues and he feels more unstable than at any time since the beginning of the year after the Rwanda tribunal. defeat.
This is an argument he’s going to have to work very hard on if he wants to win.
Over the weekend, Mr Hunt insisted the next Budget would be focused on growth for businesses, tell Sky News he wanted to help create a “productive, dynamic and sparkling economy”.
But the chancellor also said “everything is on the table” when asked about swirling rumors about possible tax cuts.
Sky deputy political editor Sam Coates understands personal income taxes will fall in Wednesday’s statement, as the government also seeks to help households deal with the cost of living crisis.
In the latest edition of Politics at Jack and Sam podcast, by Sky News and Politico, he said the cut was unlikely to be to the basic rate of income tax.
However, Institute for Fiscal Studies director Paul Johnson warned there was “no headroom” for significant tax cuts.
The economist said chancellors could “always find a few billion in a budget or an autumn statement if they wanted to” but that the public finances were “in such a mess” because of the amount spent on interest from the debt, that there was none. plenty of room for maneuver for Mr. Hunt.
During his speech, Mr Sunak also promised to “crack down” on welfare cheats, calling it a “national scandal” and “a huge waste of human potential” that around two million people of working age do not are not used.
It is said that the government is consider a sharp reduction in social benefits in order to save money, by effectively reducing working-age welfare benefits for millions of people.
The Prime Minister said: “We believe in the dignity inherent in good work and we believe that work, not welfare, is the best way out of poverty.
“So we need to do more to support those who can work to do so, and we will crack down on welfare cheats because the system needs to be fair to the taxpayers who fund it.”
Mr Sunak also used his speech to launch an attack on the Labor Party for having “no experience” in business, and accused Sir Keir Starmer and shadow chancellor Rachel Reeves of offering answers “of fairy tale” to questions about the growth of the economy.
But Labor national campaign coordinator Pat McFadden said: “The Conservatives have failed to deliver on so many past commitments. Why should people believe that they will keep their commitments for the future?
“It sums up the Conservative Party to pretend things will be better tomorrow when they can’t even solve today’s problems.”