Tories face battle to restore reputation on tax

Party must make good on new trajectory that began in November and actually get the tax burden falling

Just hours after Jeremy Hunt presented this year’s Autumn Statement, the Tory party tweeted “Conservatives cut taxes. It’s just what we do.” It was a pithy summary of some of the measures, including a 2p tax cut to employee National Insurance contributions and the permanent introduction of “full expensing” for business. There was just one problem: the claim wasn’t quite true.

Yes, specific taxes had been slashed. But the tweet landed just as journalists and wonks were digging into the Office for Budget Responsibility’s “economic and fiscal outlook” that accompanies the Chancellor’s announcements. It was quickly unearthed that, despite the tax cuts, the overall tax burden was still rising. Indeed, it remained exactly on track with March’s forecast, showing tax receipts as a percentage of GDP hitting a staggering 37.7pc by 2028-29.

It seems, then, that the tax story of 2023 has been uncomfortably similar to that of previous years: the tax burden continues to rise, still on track to hit a post-war high. Could the new year finally mark the moment when the tax burden starts to fall?

“This can’t be a question going into an election,” says one minister. “Either taxes are cut, and people feel the benefits, or that narrow path to victory becomes no path at all.”

One factor in Rishi Sunak and Hunt’s favour is inflation, which saw the rate slow more than expected in November, to 3.9pc on the year.

With your average worker starting to feel the benefits of wage increases – no longer cancelled out by rocketing prices – any tax cut that the Tories were to announce (including the 2p cut to National Insurance that comes in next month) is more likely to be noticed

– and felt. “What [Hunt] did in

November was a good start,” says another MP. “But people have noticed that they’re paying more tax.” This remains the problem with the Government’s tax narrative: that the tax cuts they implement are still being offset by the decision made under then-chancellor Sunak to freeze tax thresholds, dragging millions of people into paying higher rates.

The combination of four million more workers paying tax, three million more paying the higher rate and 400,000 paying the additional rate by the end of the next parliament is expected to give the Treasury £45bn of additional revenue from personal taxes alone, according to the OBR. This was justified in 2021 as the Government’s way of recovering some of the hundreds of billions it was spending on pandemic support. This includes the furlough scheme, which on its own came with a £70bn price tag.

But a tax hike that was once used to justify emergency spending has morphed into something else. Now, higher taxes are explained away for reasons that are much harder to sell, including higher day-to-day spending and political experiments (like Liz Truss’s 49-day premiership), which led Hunt to double down on tax rises to prove that the UK took the dire state of its public finances seriously.

The Government is desperate to make out that the Autumn Statement was the start of a new trend: one where tax cuts are prioritised, made possible by playing a more cautious game in 2023 and getting inflation under control. But reducing the tax burden is only one (albeit necessary) part of the equation now. Not only do the Tories need to further cut tax in the new year, but whatever they do has to restore voters’ broken trust in them as a party of lower taxation.

It’s a trust that has been further fractured by the party repeatedly overstating its credentials. Not even the grassroots are willing to take at face value claims that the Tories have been chipping away at the tax burden. It has not helped that the Government’s biggest mechanism for hiking the tax burden has been stealth taxes – using fiscal drag to get more money into the coffers, while claiming at the same time it has been cutting taxes.

The philosophical arguments for a lower tax burden and smaller state have lost traction as we’ve jumped from one Tory leader to the next. Boris Johnson never wanted to acknowledge the concept of trade-offs, preferring instead a “cakeist” style, where you enjoy lots more spending without raising taxes. Truss forgot about the spending side of the ledger, willing to embrace bigger government deficits if it meant she could spend the money as she saw fit.

Sunak has the most traditional conservative outlook: an understanding that you largely must account for what you are spending. A lower tax burden often means doing less. But it’s an outlook he has yet put into action, now overseeing, as Prime Minister, a higher tax burden than Johnson did.

He’s got one more chance to fix this: the Budget, announced this week for

March 6. The debate over which taxes to target – ongoing within the party for the better part of a year now – rages on.

Slashing inheritance tax would be the cheaper and headline-grabbing option, not least because changes to income tax (including raising the personal allowance or lifting the higher rate threshold) would have to be so substantial to make an impact that they could cost the Treasury dearly. But the risk remains that cutting inheritance tax during a cost of living crisis will turn off more voters than it engages – especially as far fewer will be impacted by such a move than the millions being pulled into higher rates of income tax.

But whatever the Tories choose, the most crucial element will be that the tax cuts are both announced and enacted before the next election.

The party simply claiming it values lower levels of taxation would be more of the same. In order to win back some of that lost trust, the Tories must make good on the new trajectory that began in November and actually get the tax burden falling.

With only a matter of months left to do so, there isn’t a moment to lose.

‘It’s a trust that has been further fractured by the party repeatedly overstating its credentials’