Jeremy Hunt was warned last night that failing to cut taxes in the next budget will cost his party the next election.
Conservative MPs reacted with alarm yesterday when Treasury officials confirmed the Chancellor was planning a “reduced” statement on March 15, with no proposed tax cuts.
Hunt has warned ministers that the public finances will be no better in March than in November, when he raised taxes to a post-war record, and cutting them now would prolong the pain of “stubbornly high” inflation. He is expected to unveil a growth plan, but sources said there was “no money” for tax cuts to help revive the ailing economy.
A Treasury expert ruled out any “deviation” from the attempt to halve inflation, which fell slightly to 10.5 percent yesterday.
Chancellor Jeremy Hunt has been warned that the government will “collapse without a trace” at the next election unless it introduces tax cuts.
Sir Iain Duncan Smith has said the Conservatives will have “no hope” of winning the next election without tax cuts.
The hardline stance prompted warnings from Conservative MPs that the Chancellor needed to return to the party’s traditional tax-cutting agenda this year.
Former leader Sir Iain Duncan Smith said: ‘We have to kick-start growth. This Government will collapse without a trace if we do not get growth moving forward by the middle of this year; We will have no hope of winning the elections. We’re already overtaxed and it’s pretty clear we can’t tax our way out of a recession.’
His Conservative colleague Sir John Redwood also warned that tax cuts were essential and said some could even boost overall revenue by boosting growth. And he added: ‘We can’t address the issue of growth without some tax cuts. Of course, they must be affordable, but the best way to reduce debt and increase income is to grow the economy.’
The warnings came as:
- Former Bank of England deputy governor Sir John Gieve predicted he would “press harder” on interest rates to curb inflation;
- Business Secretary Grant Shapps was set to outline plans today at the World Economic Forum in Davos to “scale up” the UK economy;
- Former Bank of England Governor Mark Carney was optimistic about the economic outlook in a speech at the same event;
- But CBI director Tony Danker warned that investors were pulling out of the UK because of the lack of a growth plan;
- The UK’s biggest North Sea oil and gas producer has warned of job cuts.
Inflation fell slightly in December after hitting a 40-year high in October
GDP data has also held up slightly better than analysts expected, potentially avoiding a technical recession in the final quarter of 2022.
The Conservatives have been far behind Labor in the polls for months.
The Office for Budget Responsibility said Hunt’s November budget would raise the overall tax burden to 47 percent of GDP this year, up from 39 percent before the pandemic and the highest level since World War II.
Hunt said the package of tax rises and spending cuts was necessary to restore confidence and stability following the backlash to Kwasi Kwarteng’s ill-fated mini-budget in September. Privately, Conservative MPs have already started pressuring the Chancellor to reduce fuel duty, which is set to rise by 12p a liter in March. Senior officials are also pressuring him to relax rules on the tax treatment of self-employed workers, arguing that they are a “barrier to growth.”
And there is pressure to restore a planned income tax cut before the election, which was abandoned by Hunt last year.
Boris Johnson’s allies are among those who believe tax cuts are essential to the Conservative party’s electoral prospects.
Meanwhile, sources close to Liz Truss said she was set to use her first public intervention since leaving No 10 to defend the tax cut. The former prime minister attended the launch of a new group of Conservative growth MPs on Tuesday.
Sir John Redwood also warned that tax cuts were essential and said some could even boost overall revenue by boosting growth.
Sir John said: ‘I am very pleased to hear that the new Government wants some growth.
‘We can’t address the issue of growth without some tax cuts. Of course, they must be affordable, but the best way to reduce debt and increase income is to grow the economy.’
Privately, Conservative MPs have already begun to pressure the Chancellor to reduce the tax burden, including maintaining fuel taxes, which will rise by 12p a liter in March.
There are rumors that Liz Truss could make her first parliamentary intervention since leaving 10 Downing Street last year to advocate for tax cuts.
But it remains to be seen how this would be scaled down in the House after her economic policies in her short time as Prime Minister caused markets to collapse.
It comes as today’s figures showed headline CPI finally eased from 40-year highs, with a rate of 10.5 per cent in the year to December.
GDP data has also held up slightly better than analysts expected, potentially avoiding a technical recession in the final quarter of 2022.
Conservatives believe the government should have a little more leeway after energy costs fell, reducing the subsidy bill on household bills.
A senior minister told MailOnline that Rishi Sunak and Hunt would make the decision, but a likely election in the second half of next year should focus minds. Tax cuts could help improve Rishi Sunak’s standing and morale in the final year of parliament.
The minister said there was “some reason for hope as the economic data looks slightly better.”
“Bills are starting to go down, inflation could be going down,” they said.
“If we can make some savings on things like the energy bill plan, if the economy is stronger because we’ve stabilized the government, we could get back to the issue of tax cuts soon.”
They added: ‘It’s a narrow road. We need a better economy, to persuade people to trust us with the NHS. Maybe we need to get lucky with Ukraine and hope Starmer makes mistakes.
‘But it’s all about impulse. “If we get to 2024 and put some money back in people’s pockets, everything will be at stake.”
A Treasury source insisted tackling inflation was the “priority” for Hunt.
‘We want low taxes and solid money. But sound money has to come first because inflation eats away at the pound in people’s pockets even more insidiously than taxes,” they said.
However, they acknowledged that the Bank of England anticipates that the prime minister’s goal of halving inflation could be achieved in the final quarter of the year.
The annual CPI rate was 10.5 percent in December, down from 10.7 percent the previous month, and falling fuel costs helped ease the pain for Britons.
Falling fuel prices were one of the main factors contributing to the decline in overall CPI in December.
That benefit was partially offset by continued increases in food prices.
It is the second consecutive drop for the index, and experts suggest the peak has passed after the 40-year high of 11.1 percent in October. It could ease pressure on the Bank of England to continue raising interest rates, although another hike within a fortnight looks inevitable.
However, Hunt warned that efforts to address the curse of rising prices cannot be relented. Ministers also vowed to stand firm in the face of a wave of public sector strikes, saying giving in to demands for double-digit pay rises would risk undoing progress made.
Speaking after the figures were announced this morning, Mr Hunt said: “There is no room for any deviation from our core objective for the year, which is to halve inflation, so that we can tackle, for example, anger of public sector workers who see their salaries eroded, we deal with the pressure that pensioners suffer when they do their weekly shopping, the pressure on companies sometimes worried about their viability.
“This has to be our core mission and that is why the Prime Minister has nailed his colors to the mast and said we are going to halve inflation over the next year.”
The Office for Budget Responsibility said the November budget would increase the overall tax burden to 47 percent of GDP this year, up from 39 percent before the pandemic and the highest level since World War II.
The row comes at an awkward time for the Chancellor, who has been mocked online today for a new video in which he attempts to explain inflation through the use of multiple disposable coffee cups.