PM wants 2p tax cut before the election
Sunak seeks to reduce National Insurance or basic rate to incentivise work as inflation falls
RISHI SUNAK wants to cut National Insurance or income tax by up to 2p before next year’s general election and head into the campaign “promising to do more”, The Sunday Telegraph understands.
Officials have been investigating the impact and likely duration of current levels of inflation, after recent figures proved worse than Mr Sunak and Jeremy Hunt, the Chancellor, had expected even several weeks ago.
Senior figures have tentatively concluded that despite the “stickiness” of inflation, the economy is likely to recover sufficiently for Mr Hunt to introduce a cut in April, even if he has to wait until the Budget in March to announce the move.
A senior government source said that the Prime Minister wants to cut income tax or National Insurance when inflation has receded, on the basis that both would “incentivise work”. During his leadership campaign, Mr Sunak focused only on cutting income tax, in pledges that were scrapped in the wake of Liz Truss’s premiership.
Holding a tax cut back until March could result in the change being implemented weeks from an election.
A government source said: “No one should be in any doubt that we will go into the election having cut taxes and promising to do more.”
A senior government source added of Mr Sunak: “Cutting tax on working people is something he strongly believes in. He wants to incentivise work, as you can see from what DWP [the Department for Work and Pensions] and the Treasury have been doing on getting people back to work.”
The approach is based on a belief that “work is good for people and it’s good for the wider economy as well”.
Having implemented a cut in April, Mr Sunak hopes to go into the election with a revived version of his leadership pledge to cut income tax by 1p in each year of the next Parliament.
Meanwhile, the Conservatives are likely to make hay with an internal Treasury analysis which suggests that Labour’s planned £28billion-a-year investment in climate measures could push up mortgage payments by hundreds of pounds a year.
Labour has said the plan would be funded by borrowing. Treasury analysis found that borrowing just £20billion would lead to a 0.5 percentage point increase in interest rates. This would equate to £912 extra per year for a household with a £250,000 mortgage.
Another idea being discussed in No10 is to raise the thresholds at which workers begin paying both income tax and National Insurance, after Mr Sunak “equalised” the levels for both levies at £12,570. However the move is seen as “eye-wateringly expensive”.
Mr Sunak and Mr Hunt have said that they want lower taxes but have clashed with Tory MPs over their refusal to commit to cuts before the next election.
The Prime Minister and Chancellor fear that cutting personal taxes with inflation at its current level of 8.7 per cent would prompt the Bank of England to hike interest rates further.
Senior figures believe that a clear, “retail” offer of personal tax cuts should be a priority for the Conservatives to create a clear divide with Labour.
As Chancellor, Mr Sunak announced a 1p income tax cut in March 2022 for 2024, but Mr Hunt scrapped the move last autumn. Mr Sunak is hoping to revive it and go further with a 2p cut to the basic rate of income tax or an equivalent reduction in National Insurance.
A Treasury spokesman said: “We don’t comment on tax policy outside fiscal events.” Labour insisted its plans were “subject to ... getting debt falling as a percentage of GDP”.
There is at last relief on the horizon for family budgets stretched to breaking point by 18 months of inflation and tax rises. Rishi Sunak wishes to cut the basic rate of income tax or, intriguingly, National Insurance, by up to 2p in the pound, coming into effect in April 2024. While this remains conditional on inflation and borrowing costs falling sufficiently to make the move fiscally responsible, and no final decision has been taken, it is clearly very much at the top of the Prime Minister’s list of priorities. Even better, there would be a promise of more to come if re-elected.
It is a welcome return to form for the Conservatives after a series of disastrous, incentive-sapping tax hikes on capital and labour. Having allowed the tax burden to creep to its highest level in 70 years, the party appears to be starting to recover its sense of purpose. The hope must surely be that the electorate will recognise and reward this. If this is to occur, however, more will be needed.
Our tax system remains byzantine, the complexities of rule and ritual governing over it more suited to Gormenghast than to a country seeking to establish itself as a nimble alternative to a sclerotic European continent. In places it is unfair, in others it is economically damaging, and in all too many it is both at the same time. Inheritance tax manages to combine deep unpopularity with a burden on saving and an overly complex implementation. Abolishing it would make for an effective statement of intent ahead of the election, setting the tone for the next term of Conservative government. Corporation tax, too, is economically damaging, and the decision to raise rates seems dispiritingly effective in driving investment overseas.
Such cuts must be paid for. Slimming down the state and its ever-increasing demands for funding would be welcome, but perhaps the best way to pay for a lower tax burden would be with a booming economy that can afford to provide more services for a given share of national income. It is disappointing, then, that just as the party is rediscovering its way again on tax, it is in danger of losing it elsewhere.
Government policy appears to be aimed at making groceries more expensive. The ban on “buy-one-get-one-free” offers for “unhealthy” food is still set for this autumn, while green levies imposed next year could increase household bills by up to £140 per year. These are intended to reduce waste, make progress towards net zero and raise funds for recycling, but will effectively be taking money from households already struggling to make ends meet.
We already have far too many of these sorts of regulations. Mr Sunak’s re-embrace of a low-tax vision is to be praised. He should also scrap his green crackdown and position himself as the consumers’ champion.