Rishi Sunak has fueled reports that he will unveil tax cuts in Wednesday’s autumn statement.
In a major speech, the Prime Minister said: “You can trust me when I say we can start cutting taxes responsibly.”
His comments came after intense speculation over the weekend that Chancellor Jeremy Hunt will announce a cut to income tax or national insurance.
The move is designed to boost the Conservatives’ popularity ratings in the polls and to force Sir Keir Starmer to say whether a future Labor governor would reverse such a decision.
In a speech to mark halving inflation, something he promised to do earlier this year, Sunak said the government could now “focus our attention on cutting taxes”.
The Prime Minister suggested a personal tax cut was on the way, saying we would “reward work” and take steps to “grow the economy”.
He also said he believed in “careful and sustainable” tax cuts and warned against any “simple, fairytale” promises. “We can’t do everything at once. It will take discipline and we must set priorities.”
Reports at the weekend suggested Hunt was considering a sharp income tax cut. But the chancellor stressed on Sunday that he did not want to offer a tax cut “that would fuel inflation”.
The independent understands that a controversial inheritance tax cut is no longer on the table and is being delayed until at least next year. A government source said any tax cuts announced Wednesday would focus on supply-side measures to boost economic growth, something a cut to the inheritance tax, a levy on wealth, does not do.
National insurance now more likely to be cut than income tax, says The timesand Treasury officials are believed to believe it would be cheaper and less inflationary.
Sunak has been under enormous pressure from different Conservative factions to cut inheritance tax, personal taxes and company taxes, with many of his MPs insisting the spring budget is too late to wait for revive the party’s fortunes ahead of elections scheduled for fall 2024.
The Conservative leader also claimed that handing over the UK economy to Labor would be “as dangerous” as having Liz Truss in charge, recalling last year’s wave of unfunded tax cuts in the disastrous mini-budget.
He claimed Keir Starmer and Rachel Reeves wanted to continue the “big spending approach”, pointing to the opposition’s £28bn green business plan.
“This makes the same economic mistake as last year’s mini-Budget: spending tens of billions of pounds on unfunded spending is as dangerous as spending tens of billions of pounds on unfunded tax cuts,” Mr Sunak said. .
The chancellor, facing calls from Conservative MPs to reduce corporation tax, is expected to reduce corporate taxes by extending the “expenditure” scheme, a form of relief that allows companies to offset investment with corporation tax. societies.
Sunak and Hunt also hoped to reduce benefits with a real terms cut on Wednesday, a move that will spark outrage from charities and the opposition.
Ministers were prepared to use the September figure for inflation by increasing benefits – a rise of 6.7 per cent. But Hunt could use October’s much lower figure of 4.6 per cent instead, saving around £3bn.
A new analysis by the Resolution Foundation thinktank said families would lose up to £500 a year with lower payments.
Sunak said on Monday the welfare system is not currently “sustainable”, as the government prepares to launch a new crackdown on claimants who refuse to engage with its employment office, which could see payments scrapped.
Meanwhile, Paul Johnson, director of the Institute for Fiscal Studies (IFS), said the chancellor can only afford “a small [tax] cut here or a little cut there” on Wednesday.
The respected economist told Times Radio that any tax cuts would have to be followed by “incredibly tight spending plans”, including cuts to public services.
Although Hunt has been said to have improved fiscal “headroom” of around £25bn, the IFS chief said Britain’s bleak debt picture meant there was little to play with.
“There is a lot of speculation that against this rather strange target there is a little more room for manoeuvre. But that’s not real,” Johnson said.
Hunt is also expected to unveil a controversial restriction on benefits to find savings, effectively cutting payments for millions of struggling families.