Budget tax cuts off the table, say Hunt and Sunak
Helping people to return to workforce after Covid is the priority for Prime Minister and Chancellor
‘Our priority is to halve inflation, reduce debt and grow the economy. I am confident the Budget will deliver on that’
‘Liz Truss was right to say that the central question is how we deliver growth, but it was wrong to say you can borrow to cut taxes’
RISHI SUNAK and Jeremy Hunt have argued the time is not right for tax cuts, indicating that pleas for them from Tory backbenchers will be rejected in next week’s Budget.
The Prime Minister told reporters accompanying him on a trip to Paris yesterday that his target to halve inflation this year was the biggest economic priority for the country. Meanwhile, Mr Hunt, the Chancellor, said on GB News that tax cuts could not be funded by borrowing, arguing “you need responsible public finances” before such a move could be contemplated.
Boris Johnson is among Tory MPS and business leaders who have called for next month’s planned rise in Corporation Tax – from 19 per cent to 25 per cent – to be ditched, but their demands are being rebuffed by the Treasury.
Instead, in a new push for economic growth, dozens of measures aimed at getting people back into work will be placed at the heart of Wednesday’s budget announcements.
Mr Sunak said: “Over time I’ve been very clear my ambition is to cut people’s taxes. I’ve said that multiple times. I think people recognise that Covid and now a war in Ukraine, and the impact that’s had, has had a major damaging impact, not just on the economy but on our public finances. I think everyone understands that.
“The economic priorities are to halve inflation, reduce debt and grow the economy. Those are the right priorities and I’m confident that the Chancellor’s budget will deliver on all of those. That is the focus of our policy and that’s the thing that people want to see.”
Mr Hunt said: “Liz Truss was right to say that the central question is how we deliver growth; where I think the mini Budget was wrong was to say you can borrow to cut taxes, because that’s not sustainable. That’s not money that you’ve actually got, that’s money you’re borrowing and so if we’re going to cut taxes permanently, then it needs to be a tax cut that we earn, through higher growth and the first step is stability. And for stability, you need responsible public finances.”
The Daily Telegraph can reveal that an expansion of so-called “midlife MOTS” will be unveiled in the budget, with millions of older workers encouraged to take part. The MOTS are financial health checks that enable people in their 40s, 50s and 60s to look at the real cost of retirement, which Treasury insiders think is often underestimated.
The Government thinks an increased take up of the MOTS could convince fewer people to retire early – a phenomenon that increased during the Covid-19 pandemic, leaving gaps in the workforce. Other measures will include additional childcare support to help parents return to the workforce. Changes to the benefits system to make work pay have also been considered.
The Treasury has announced plans to invest £20billion over the next 20 years to support schemes that capture carbon dioxide (CO2) emissions from industrial processes. Its officials said the money will drive forward projects that aim to store 20-30 million tonnes of CO2 a year by 2030, equivalent to the emissions of 10-15 million cars. It will help the UK hit the Conservative Government’s target of reducing the UK to a “net zero” car
bon emitter by 2050. Meanwhile, Baroness Altmann, the Tory peer and former pensions minister, called for a new version of the Beveridge Report to be produced to address social challenges facing modern Britain.
That government report was produced in 1942, during the Second World War, and paved the way for the modern welfare state.
Baroness Altmann told BBC Radio Four’s The Week in Westminster: “We have, I think, a general crisis in care, not just healthcare but [in] childcare and adult social care.
“There is perhaps a reset of the welfare state that we need to consider, a kind of new Beveridge, with an ageing population and more young women who are willing and able and want to work, to try to make society supportive enough to ensure that can happen.”
Mr Hunt will make his Budget announcements in the House of Commons on Wednesday.
In his GB News interview, Mr Hunt also rejected calls for the Corporation Tax rise to be abandoned.
He said: “I would say we do want to bring down our effective Corporation Tax, the total amount people pay as a proportion of their profits.
“We do want to bring [that] down. “But, as I said before, it’s not something we’re going to be able to do all in one go.”
The past few weeks have highlighted Rishi Sunak’s strengths as a politician: his diligence and attention to detail, and his admirable determination to direct those qualities at difficult issues. Yet next week, at the Budget, he faces an uphill challenge to maintain this good run.
First, the fruits of his methodical manner should be applauded. He appears to have made progress on the Northern Ireland Protocol, with both Brexiteers and Remainers believing his negotiations mark an improvement on the present condition. And now we are seeing the same focus on small boat crossings. Yesterday in Paris, he was with President Emmanuel Macron announcing a “new era” in cross-channel relations and a joint determination to deepen co-operation on stemming the tide of small boats. We must wait to see if results live up to these positive words, but patience and persistence already look to be delivering progress on a subject of enormous importance.
The question is, what happens next? For now Mr Sunak must turn his attention not to solving tricky problems he has inherited, but to outlining a vision of his own. And there is no greater opportunity for doing so than on the matter of Britain’s post-brexit economic arrangements.
There is much to address. The pandemic has habituated Britons to vast state intervention, to the tentacles of government reaching into every aspect of their private lives. It has normalised overbearing regulation of business and, above all, it has upended Conservative economic policy in favour of high taxes and high spending. The overall tax burden is now heading above 37 per cent of GDP, a post-war high. Even the Labour governments of Harold Wilson in the 1960s and 1970s did not manage that.
The results are clear for all to see. Business leaders warn they are being driven from these shores by statist cash grabs, like the NHS drug levy, which pharmaceutical manufacturers complain is “vastly in excess of anything … anywhere else in the world”.
Then there is corporation tax, due to increase next month from 19 per cent to 25 per cent. Faced with what it called such a “discouraging” tax regime, Astrazeneca last month chose to build a new £320 million factory in Ireland rather than the north of England. Nothing could reveal more starkly that a government which once talked about levelling up is pursuing a fiscal policy that drives away jobs, opportunity and investment for areas that sorely need it.
It gets worse. The Bank of England predicts business investment will crumple by more than 5 per cent, both this year and next. Research suggests the corporation tax hike alone may reduce GDP by more than 1 per cent. Together, the corporation tax rise, combined with the scrapping of investment allowances by successive Tory chancellors, will see businesses face a tax take that experts say is the highest it has ever been. To pursue this course is to pursue stagnation and despair.
Whatever happens at next week’s Budget, it is essential that Jeremy Hunt, the Chancellor, revives and reinforces this nation’s reputation as a welcoming environment for business investment. It is through such investment that productivity improves and economic growth is stimulated, so that individuals get richer and sufficient revenues are delivered to fund good public services.
The single most important indicator of such an environment is corporation tax. To raise it so significantly would be to kill off Britain’s image as a good place to do business. Naturally, the Government says reversing such a long-planned hike is impossible. But Mr Sunak said similar about the proposed National Insurance hike last year when he was chancellor, stoutly defending it as both fair and necessary to balance the books. A few months later it was easily abandoned.
This shows the downside of the Prime Minister’s earnest, diligent approach. Nimbly changing course, painting the big picture of what he wants the country to look like, and signalling that loud and clear to international investors, is not always his way. But he must now shift gear, setting out how he intends to capitalise on the emancipation of Brexit to establish an attractive low-tax, low-regulation regime.
He will be able to see the merits of that for himself next week, when he travels to America on Monday for a summit. There, as states compete between themselves, low-tax states like Texas and Florida are thriving. It is a lesson he must pass on to his Chancellor in time for Wednesday’s Budget.