UK chancellor Jeremy Hunt has warned Conservative MPs not to expect tax cuts in his March Budget, but Tory strategists are earmarking the equivalent fiscal event next year as the moment for a pre-election giveaway.
Some Conservatives want to start reducing taxes now, but Hunt told MPs this week that it would be irresponsible to do so in his March Budget at a time of high inflation, according to people briefed on the discussions.
“The situation in March will be much the same as at the Autumn Statement in November,” said one government insider. Hunt used that fiscal event to cut public spending and raise taxes to fill a £55bn fiscal hole.
The chancellor has told colleagues he hopes that by next year inflation will be coming under control and tight fiscal constraints could allow him to hit his targets with room to spare.
Tory strategists said the path to a victory in an election expected in autumn 2024 is “steep and narrow”, but that tax cuts next year will be a vital part of the strategy.
The aim will be to show voters the economy has turned a corner and that brighter times lie ahead, they added. A cut to the basic rate of income tax is seen as the most effective way of demonstrating that.
One senior government figure said: “The big Budget will be in the spring of 2024. That’s when we’ll unleash the fiscal headroom and put money into people’s bank accounts ahead of the election.”
Rishi Sunak on Thursday stressed his desire to cut taxes but warned voters they would have to wait because of the Covid-19 crisis and Russia’s invasion of Ukraine.
“I’m a Conservative, I want to cut your taxes,” the prime minister said in Morecambe in Lancashire. “I wish I could do that tomorrow quite frankly but the reason we can’t is because of all the reasons you know.
“We had a massive pandemic for two years, we had to shut the country down, do a bunch of extraordinary things that didn’t come cheap. Now we’ve got this war going on which is having an enormous impact on inflation and interest rates.”
Last year Hunt scrapped a 1p cut in the basic rate of income tax announced by his predecessor Kwasi Kwarteng, scheduled to take effect in April 2023.
In a move saving £5bn a year, Hunt also announced that he was scrapping Sunak’s promise to introduce the cut in 2024. This pledge was made by the prime minister when he was chancellor.
Charles Walker, a senior backbench Conservative MP, supported the gradual approach being adopted by Sunak and his ministerial team, comparing it to a cricket batsman newly arrived at the crease.
“He will use the first year to ‘play himself in’ after the loss of two prime ministerial wickets in short succession,” Walker said.
“In his second year, the one in the run-up to an autumn 2024 general election, he and his batting partner, the chancellor, will open their shoulders a little more and put some runs on the board.”
Hunt’s allies said it was impossible to speculate on what might happen in a 2024 Budget, with so many variables in the economy, including fluctuating energy prices.
“The overall aim of the government is to bring down inflation,” said one. “Everything has to be seen through that prism.”