Rishi and Hunt set for crunch talks as they try to find cash for 2p tax cut

CHANCELLOR Jeremy Hunt is scrabbling to find the money to make a 2p cut in personal taxation in Wednesday’s Budget – and rescue the Tories’ Election hopes in the process.

The Treasury had hoped to have around £30billion available for handouts, but unexpected rises in the cost of government borrowing has reduced that to around £13billion – equivalent to a 1p cut in income tax and 1p off National Insurance.

Mr Hunt is expected to meet Prime Minister Rishi Sunak this evening to finalise his plans, which could include a crackdown on nondom tax status, a tax on vaping and a further windfall levy on oil and gas firms, in a bid to free up money for personal tax cuts.

Mr Sunak had hoped that a taxcutting Budget would help the Tories claw back Sir Keir Starmer’s daunting opinion poll lead, and put the economy on a buoyant path towards a second giveaway financial statement in the autumn, ahead of a General Election.

However, some Tory MPs warn against ‘waiting for something to come along’. They point out that big bills are coming down the track for issues such as the infected blood scandal, which could top £11billion – just as hundreds of thousands of voters are coming off fixed-rate mortgages and on to more expensive deals.

Some Conservatives think the Prime Minister should wait until the autumn for an Election. Others think he should go to the country now, while Labour is divided over its Gaza policy – and before Nigel

Farage’s Reform UK eats even further into the Tories’ support.

The Mail on Sunday revealed last month that meetings have been held in government offices to make contingency arrangements for an Election on May 2 – the same day as the local elections.

Labour has long suspected that the Prime Minister might call a snap spring vote, despite him declaring earlier this year that his ‘working assumption’ was that the General Election would be held in the second part of this year.

Members of ‘Team May’ also point out that legal migration figures due to be published at the end of May are expected to be ‘a horror show’ for No 10.

They add that we are likely to have another summer dominated by coverage of migrants making small boat crossings, which could hit the party’s ratings further still.

The Chancellor expressed his frustrations at a meeting with the One Nation group of moderate Tory MPs last Monday.

A source said: ‘He was very much trying to dampen down expectations.’ The MPs pointed out that the 2p which Mr Hunt cut from National Insurance contributions in his Autumn Statement had not ‘cut through’ to voters. The measure was preferred by the Chancellor because it is less inflationary than an income tax cut. But it is also less electorally effective.

Both No 10 and No 11 deny claims made last week by former Chancellor George Osborne that there is friction between Mr Hunt and Mr Sunak over what cuts to make.

WHEN a lectern appeared outside Downing Street in the vanishing light of Friday afternoon, mobile phones started buzzing across Westminster. No, political journalists explained, Rishi Sunak was not about to call an Election; he was delivering a speech urging the public to ‘face down’ extremists threatening to ‘tear us apart’ in the wake of George Galloway’s by-election win in Rochdale.

But if some influential figures in the Government have their way, in three weeks the Prime Minister will be back on the steps of No10 to do exactly that.

Until recently, Mr Sunak’s advisers were near-unanimous: leave the Election until the last possible moment to give the flagging economy time to pick up. However, the fraught build-up to Jeremy Hunt’s Budget on Wednesday has cast doubt on the wisdom of this strategy.

As one pivotal figure said: ‘Six weeks ago we were looking at a £30billion pot to distribute in the form of eye-catching, potentially game-changing tax cuts. Now, because of the rising cost of government borrowing, that has more than halved. You can never be sure what will happen – there is no guarantee that things will be better if we throw in an Autumn Statement before polling day. In fact, they could be worse.’

A well connected MP said autumn will be the time when bills arrive for issues such as the infected blood scandal, which could top £11billion, plus £2billion more for the victims of the Post Office miscarriages of justice, just as hundreds of thousands of voters are coming off fixed-rate mortgages and on to higher deals.

THE MP added: ‘I’m definitely on Team May.’ As The Mail on Sunday reported last month, meetings have been held in Government offices to make contingency arrangements for an Election on May 2, the same day as the local elections.

If Mr Sunak went to the country on the same day, it would at least avert any attempt by Tory MPs to oust him if the results are as bad as expected. Those on ‘Team May’ also point out Sir Keir Starmer’s Labour is currently divided over the Gaza conflict – as demonstrated by Mr Galloway’s victory over his party – and argue that the opinion polls are showing no sign of budging.

Indeed, the legal migration figures due to be published at the end of May are expected to be ‘a horror show’, and with another summer of small boat crossings on the horizon, the party’s ratings could sink below the current 20 per cent to ‘extinction levels’, with the Tories even potentially being overtaken by Nigel Farage’s Reform UK. Discussions between Mr Sunak and Mr Hunt in the runup to the Budget have been civil but gloomy. In what is either a masterful piece of expectation management or the sound of the final nail being hammered into the coffin of Tory Election hopes, Treasury officials say there is scant money for meaningful tax cuts.

Two months ago, the Chancellor was allowing himself to feel guardedly optimistic: predictions that interest rates would start falling sooner than expected had reduced the rate on government borrowing to such a degree that he was eyeing up a £30billion pot to hand out to the electorate. He even invited comparisons with Nigel Lawson, Margaret Thatcher’s magisterial tax-cutting Chancellor.

Fast-forward to this weekend, and the Treasury complains that the pot has shrunk to £13billion because interest rates are not expected to fall until later in the year. A 2p cut in income tax would consume that entire surplus.

It means that cuts are likely to be restricted to National Insurance, following the two per cent reduction in last year’s Autumn Statement. It is impossible to divine Mr Hunt’s emotions from his demeanour – which remains polished and perky – but well-placed sources talk about his frustrations. ‘Every time we have allowed ourselves to get our hopes up we have been punched,’ says one.

The latest punch came on Wednesday when the Office for Budget Responsibility (OBR) poured cold water on a package of policy proposals for growth put to it by Mr Hunt’s team in the hope that it would agree that he had more ‘headroom’ than £13billion. So the Chancellor has instead been scrambling around for more revenue-raising ideas including, to the dismay of Tory MPs, a crackdown on the non-dom status which allows people living in the UK but with permanent homes abroad to earn money from capital overseas without paying tax. An insider put the chances of it being included in the Budget at ‘a bit more than 50 per cent’. Other revenueraisers under consideration include a tax on vaping and a further windfall tax on oil and gas companies. Leaks of the plans have left the Tory faithful reeling. One party source said: ‘If they’re going to be Labourlite, then we may as well have a Labour government.’

Another option being weighed up in a bid to increase the ‘headroom’ is scaling back the public-spending plans for the next Parliament, which would raise about £5billion. The Treasury’s caution is irritating Downing Street, which needs a last-ditch game-changer to try to claw back Sir Keir Starmer’s huge poll lead. Former Chancellor George Osborne alluded to the pre-Budget tensions at the top of the Government on his podcast with his former Labour opposite number Ed Balls, saying: ‘There has been friction between No10 and No11 – and it’s obvious No10 would like to cut income tax now. That, specifically, is something that Rishi Sunak promised when he was running to be the Tory leader.’ Last Monday, the Chancellor expressed his frustrations at a meeting with the One Nation group of moderate Tory MPs. According to a source in the room, he said he is ‘really conscious that we took 2p off National Insurance at enormous cost to the Treasury – and didn’t get any political credit’.

‘He was very much trying to dampen down expectations,’ the source added. ‘Nobody thanked us,’ another recalled. ‘It is clear voters don’t notice what happens with National Insurance.’

Mr Hunt followed this up by joking that ‘if you want to be thanked, don’t get into politics’ – but few will be laughing if Wednesday fails to ease the record-high tax burden.

As one source put it: ‘Hunt told everyone he’s Nigel Lawson, but he’s actually Liam Byrne’ – referring to the Labour Treasury Minister who wrote a note to his Tory successor saying, ‘I’m afraid there is no money’.

MR HUNT has been warned by the Common Sense Group of Conservative MPs that this is his ‘last roll of the dice’, and that Wednesday’s Budget is the most politically important one in years – ‘for the country and the economy, but also for the health and success of the Government’.

They are clear that they want a change in income tax – whether cutting the headline rate or increasing the thresholds. ‘It will galvanise more people to be rebellious after the local elections,’ a former Minister said. ‘People in marginal seats see the Budget as the last possible bullet to fire.’

Others dismiss this as bluster. One MP who is no fan of the Prime Minister says he is ‘weak but stable’, and that MPs are more likely to act out, defy the Tory whip and call for Mr Sunak to go rather than actually depose him.

Conservative Campaign Headquarters (CCHQ) has offered every Tory MP 15,000 free leaflets, set to go out immediately after the Budget. The mock-up version, seen by the MoS, doesn’t have the Prime Minister’s face on it – in stark contrast to a leaflet offered to MPs after the Autumn Statement, which placed him front and centre.

Some MPs complained that they didn’t want to have Mr Sunak’s picture dominating the leaflet, and many refused to take up the offer.

One MP said that CCHQ have learned from this, adding: ‘They were quite burned by the low takeup last time. It has got to work better this time.’

The big question now is whether those leaflets will soon be dropping through letter boxes as part of a snap General Election campaign.