Cut income tax before IHT, say Tories

Politicians on both wings of party urge Chancellor to reduce levies for the many, not the few

TORY MPs favour a cut in income tax over reducing inheritance tax in the next Budget, The Telegraph has been told.

Speaking in Davos this week, Jeremy Hunt, the Chancellor, signalled he will deliver a tax-cutting fiscal statement in March. He is understood to be weighing up whether to abolish inheritance tax, or make a change to income tax which could mean the level at which the basic rate is levied increased or the 40p threshold raised. Mr Hunt is also considering a further cut to departmental spending plans to fund tax cuts, this newspaper discloses today.

It comes as it emerged that the Treasury is considering holding a second Budget before the next election, if the ballot is scheduled for the autumn.

More than 30 Tory backbenchers were questioned and 24 said income tax cuts should be the priority, while four said inheritance tax. The rest declined to state a preference.

Income tax cuts would benefit far more, with 29 million adults paying the 20 per cent basic rate and 6.6 million people paying the 40 per cent additional rate, according to official figures.

An income tax cut would also have a more immediate effect on voters’ finances than an inheritance tax cut and show the Tories are rewarding work in the run-up to a general election. However, inheritance tax is unpopular with the public, according to polls. The Telegraph has long campaigned for the abolition of inheritance tax.

Labour insiders have also admitted the party would be less likely to match a Tory promise to abolish inheritance tax, setting up a dividing line between the party and the opposition.

Earlier this week, Rachel Reeves, the shadow chancellor, hinted at tax cuts for top earners.

Speaking in Davos, she said that freezing income tax thresholds in the face of rising inflation “has affected people paying the top rate of tax and the basic rate of tax, and both of those groups of people are working hard, but getting less every month in their pay packets”. She added: “My instinct is to have lower taxes.” The Telegraph contacted Tory MPs over the past fortnight to see which tax cut they would prefer the Government to prioritise.

Politicians in both the more Rightwing New Conservatives group of MPs and the more moderate One Nation group expressed a preference for cuts on income. Jonathan Gullis, who won his Red Wall seat of Stoke-on-Trent North in 2019 and is a member of the New Conservatives, said: “We need to reward hard work, and the best way to do that is by allowing people to keep more of their hard-earned money”.

Matt Warman of the One Nation Conservatives said that the group “looks not to ideology but to the centre ground of tax cuts for the many, not the few”.

Marco Longhi, the MP for Dudley

North, said: “I hate inheritance tax because people have been taxed during their lifetimes already but choices need to be made and I would much rather see a reduction in the overall taxation everybody pays rather than one that very few pay.” However, another senior Tory told

The Telegraph he would prefer to see a cut to inheritance tax over income tax, as this would be “doable, affordable and something that Labour can’t copy”.

The Chancellor hinted at tax cuts to come in his March Budget this week.

Speaking at the World Economic Forum in Davos on Thursday, Mr Hunt acknowledged that voters were “very angry” about high rates of tax and said that he would focus on “pro-growth policies” in the coming year.

JEREMY HUNT is considering a further cut to departmental spending plans to fund tax cuts as he prepares to deliver a pre-election Budget that draws fresh battle lines with Labour.

The Telegraph understands that the Chancellor is prepared to pencil in smaller increases in departmental spending budgets until the end of the decade if a deteriorating economy limits his headroom to slash taxes.

It comes as official figures revealed a shock fall in retail sales last month, leaving the British economy on the brink of recession in a fresh blow for the Prime Minister, Rishi Sunak.

Under current plans, day-to-day spending limits will rise by 0.9pc in real terms until 2028-29. “We could chip away at that if it gives us more room to cut taxes,” said one Whitehall source.

Mr Hunt outlined his determination to cut taxes at the World Economic Forum in Davos on Thursday, insisting the “direction of travel” was lower taxes and “pro-growth policies” to boost Britain’s competitiveness. Mr Hunt has already hinted at personal tax cuts to help ease the burden on households and businesses in the March 6 Budget.

The Chancellor also admitted that voters were “angry” about years of higher taxes. Mr Sunak and Mr Hunt want to drive a clear policy wedge between the Tories and Labour, which has also hinted at tax cuts for working families, including high earners.

One source signalled that detailed plans would only be drawn up if the Office for Budget Responsibility (OBR) verdict on the economy did not provide enough headroom to cut taxes. The OBR’s first verdict on the outlook for the economy is expected to be sent to Mr Hunt next week. He has set out ambitions to raise productivity in the public sector that collapsed during Covid.

In October, he said: “We need a more productive state, not a bigger state”.

He also used a speech last summer to emphasise that the Tories would “make sure our private sector is not strangled by an ever-expanding state”.

Public spending has grown from 39.6pc of GDP pre-pandemic to an estimated 44.8pc of GDP this year, according to the OBR. It is still expected to be 42.7pc of GDP by the end of the decade, after hitting a lockdown high of 53.1pc.

Speaking to reporters on Thursday, Mr Hunt hailed the end of an era of low inflation, suggesting that lower borrowing costs could help to fund a series of pre-election giveaways. However, he also hinted that the Tories were prepared to take “difficult decisions” to boost the country’s competitiveness, including further shrinking the state.

Government departments already face a £19.1bn public spending squeeze after the election, leaving some departments facing deep cuts. Ring-fenced areas such as the NHS, where spending is planned to rise by 3.6pc in real terms until the end of the decade, imply a squeeze in other departments.

The OBR said in November that public services with unprotected budgets such as prisons, courts and local government faced a 2.3pc spending squeeze from 2025-26, which some economists have already described as implausible.

Inflation, at 4pc, is already almost a percentage point lower than the OBR predicted just two months ago.

Slower price rises will reduce the Government’s huge debt interest bill as borrowing costs fall. It will also limit spending on benefits. But a declining economy could lower tax revenues as earnings grow more slowly and more people become unemployed.

A Treasury spokesman said: “We do not comment on Budget speculation.”

Chancellor poised to stem growth in departmental budgets as he plans series of pre-election giveaways

The Conservative Party is cutting taxes. So why aren’t the polls moving? That question has done the rounds in Tory circles since the Autumn Statement, when Chancellor Jeremy Hunt introduced a series of cuts, including 2p off of employee National Insurance and making “full expensing” for businesses permanent.

The £20bn of cuts certainly made an impact on public finances, as the decision to use the Office for Budget Responsibility’s reported fiscal headroom almost completely on cutting tax meant leaving a (contested) £19bn “black hole” in public services. Yet the decision hasn’t had an impact on the party’s polling. At least, not yet.

“It’s supposed to be simple” laments one Tory MP. “We cut tax, so our situation should at least slightly improve.” But there has been no uptick in the polls. If anything, their standing appears to be getting worse. The updates just this week highlight the dire state of the party’s reputation. This paper printed comprehensive polling from YouGov – a survey of 14,000 people – that revealed a “1997-style election wipeout”, with the Tories holding on to just 169 seats. Another poll from YouGov this week shows the Tory party at their lowest levels of support since the Liz Truss project went up in flames, putting Labour a staggering 27 points ahead of the Conservatives.

It seems the typical Tory playbook isn’t working. The traditional promise of lower taxes and a less heavy-handed state isn’t having its usual effect. For now, the Government seems to want to double down. Speaking in Davos this week, Mr Hunt gave his biggest public indication yet that more tax cuts are coming in his March Budget.

“Economies growing faster than us in North America and Asia tend to have lower taxes,” he said, as he insisted that “low-tax economies are more dynamic,

‘The Tories’ traditional promise of lower taxes and smaller state isn’t having its usual effect’

more competitive and generate more money for public services such as the NHS”. Hunt will not have a sense of his fiscal headroom this time round for a while longer. But he did say that cutting taxes further was “the direction of travel we would like to go in” – a point that has also been made by the Prime Minister this week.

In Hampshire yesterday, Rishi Sunak followed up Hunt’s hints and said of the rushed 2pc NI cut, brought in this month, rather than waiting for the new fiscal year, is a “tax cut for 27m people in work”. They want more cuts “when they can responsibly do so”.

Again, there is a caveat. But the Budget this spring is one of their last fiscal events before an election. No stipulations from the Prime Minister or Chancellor are going to reduce the expectation from Tory MPs that serious tax cuts will be included, perhaps an income tax cut, a reduction in inheritance tax, or both. It’s baked in that something will be announced. But still, the dial isn’t moving.

Perhaps the most obvious problem is that voters no longer believe it. Workers are well aware that the tax burden is approaching a post-war high. Trying to suggest the situation is less burdensome than it is isn’t going to fool them. The millions of people affected by stealth taxes – mainly the frozen tax thresholds that are dragging taxpayers into paying a higher rate – are very aware of what is happening.

Yet they were bombarded after the Autumn Statement with claims that the Tory party was cutting tax, despite the fact that the tax burden was still set to rise to its highest level in 70 years.

It’s not a track record to fill you with optimism. Rather, it makes the tax cuts that came last autumn – ones that may come this spring – seem cynical. With Labour working hard to claim the title of “economic competence” from the Tories – wooing the business community both in the UK and at conferences like Davos – the Conservatives have realised that they need to have some kind of economic offer that Labour will struggle to match. They have decided that the offer will be a focus on tax cuts.

But this classifies the cuts as election giveaways, rather than part of a bigger vision for a different kind of state. This will be make it harder for workers to get excited at the prospect of keeping more of what they earn – not least if they fear attitudes will shift back to the status quo after an election.

The tax burden has been rising for years of Conservative government. Like the stealth taxes, workers know that something doesn’t quite add up: that the promises around healthcare and pensions are getting less sustainable. Without a more holistic vision of what the next five years would look like, it’s understandable that they might lack enthusiasm for the sugar rush of tax cuts.

The Tories have work to do to restore their position as the party of the small state and lower taxes.

There’s only a small window of time left to convince people of their vision for the future.