Tax ‘could be cut by 2p if Covid leavers return to work’

INCOME tax could be slashed by 2p if the hundreds of thousands who left the workforce during the pandemic returned, a Cabinet minister said yesterday.

Work and pensions secretary Mel Stride said he wanted to encourage people back into work to give the Chancellor the ‘greatest possible flexibility’ at the next Budget.

He has been tasked with coming up with ways to entice the over-50s and others who left the workforce during Covid back into employment.

Mr Stride, speaking at a lunch for political correspondents in Westminster, said it could boost the economy enough to cut income tax.

‘The increase in economic inactivity due to the pandemic was about 650,000 people,’ he said. ‘Now if we can get all of those back into work, it will increase the size of the economy by about 0.2 per cent, which will reduce the borrowing requirement by about

£ 11 billion, which will be enough to take 2p off the basic rate of tax.

‘What I’m in the business of doing is getting people back into work because work is very good for people, but also delivering the Chancellor with the greatest possible flexibility when it comes to setting out his stall this autumn and in the spring that is to follow.’

His comments come after Bank of England governor Andrew Bailey blamed a wave of early retirement for forcing up interest rates and inflation. In March, Mr Bailey said a sharp decline in the number of people in the workforce was ‘part of the reason why we have had to raise the bank rate by as much as we have’.

He added: ‘We should expect this to put upward pressure on inflation in a way that would call for a higher level of interest rates to dampen demand.’ The Bank raised the base interest rate again yesterday to 4.5 per cent from 4.25, the 12th time in a row that rates have risen. Chancellor Jeremy Hunt used his Budget to encourage over-50s to stay in work with reforms to the pension tax system and increasing ‘mid-life MOTs’.

Mr Stride also said he could see a ‘narrow path through to victory’ for the Government following the local elections. He cited Labour failing to secure a vote share victory of more than ten points over the Tories and the part played by tactical voting as reasons.

Mr Stride said the ‘ huge amount’ of tactical voting – where voters rally behind a party or candidate to prevent another they like less from winning – at the council elections was likely to be ‘squeezed out’ at a general election, along with a potential ‘tightening’ of opinion polls.

He said that as long as there were questions over whether Labour could win a majority, his party would continue to ‘exploit’ the possibility that Sir Keir Starmer could strike a coalition deal to get into Downing Street. He added: ‘If you vote for Labour, what are you going to end up with?

‘Being propped up by the Scottish National Party? Are you going to get propped up by the Greens or the Lib Dems?’