Jeremy Hunt has played down the prospect of immediate income tax cuts, pledging not to do anything in this week’s autumn statement that will fuel inflation.
Although some Conservative backbenchers are eager for measures that would be quickly felt by households, the chancellor on Sunday sought to emphasise the need to promote growth and indicated that tax cuts were “not going to happen overnight”.
The controversial prospect of announcing an inheritance tax cut on Wednesday that could spark a rebellion among Tory backbenchers defending marginal seats in less well-off areas is still on the table.
However, it remains to be seen whether an emerging scenario in which the chancellor announces business tax cuts while signalling an intention to cut income tax in the spring budget will be enough to placate rebels.
“The one thing we won’t do is any kind of tax cut that fuels inflation. We’ve done all this hard work [cutting inflation]. We’re not going to throw that away,” Hunt said in an interview on Sky News.
The Treasury has also announced that a new investment zone – England’s third, focused on Huddersfield, Bradford and Leeds – would be created in West Yorkshire. It said it could create more than 2,500 new jobs over the next five years across the region.
It comes amid warnings that an inheritance tax cut could prompt a backlash from “red wall” Tory MPs in the north of England, who are also pressing for income tax cuts to help lower-income households.
Hunt’s fellow cabinet minister, Michael Gove, also made an explicit call last month for an income tax cut before the next general election.
Labour sources say they would not go into the next election putting up taxes on working people, so if Hunt announces a cut to income tax they would not pledge to reverse it.
However, the Guardian understands that they would argue against any cut to inheritance tax, making the case that only the wealthiest 4% of the population pay it, and would probably reverse it in power.
“Cutting inheritance tax in the middle of a massive cost of living crisis and when public services are on their knees is not the right priority,” shadow chancellor, Rachel Reeves, told the BBC. “I understand people’s desire to pass on to their children what they have worked hard for, but right now that is not the right thing to do and we would not support it.”
Labour has released data that it said showed that an inheritance tax cut would benefit “the few, not the many”.
Out of the nearly 27,000 estates that paid inheritance tax in 2020-21, the figures showed that 1,684 were in constituencies represented by serving members of the cabinet. Only 267 estates paid inheritance tax in “red wall” constituencies that were won by the Conservative party at the 2019 general election.
Hunt does have some extra fiscal headroom after higher-than-expected receipts from VAT and income tax and could be expected to draw on tighter welfare spending and greater public service “productivity”.
Hunt expanded on a warning last week that welfare claimants who refuse to engage with their jobcentre or take work offered may lose benefits.
“We think it’s fair to say that if you are not engaging with this process at all, if you don’t engage for six months, we are going to close your case and stop your benefits. I think taxpayers would expect nothing less,” he said.
Ministers typically use the September figure for inflation when uprating working-age benefits, which would mean a 6.7% rise, but the chancellor has not ruled out using this October’s figure of 4.6%, which economists say would cut spending by about £3bn. The moves would largely affect working-age households receiving disability or means-tested benefits, according to the Institute for Fiscal Studies (IFS).
Torsten Bell, chief executive of the Resolution Foundation, said that the “big picture” that Hunt was operating in was that taxes were already up significantly in historic terms, suggesting that any cuts would probably be quite small.
“To have more wriggle room we would need to see an economy growing faster, but looking at the underlying sentiment such as business surveys and customer receipts we have an economy that is quite flat,” he said.
The IFS director, Paul Johnson, said any cut to inheritance tax would be “a very odd statement of priorities”.
On benefits, he said while he understood what the chancellor was saying on one level, “we do have possibly the meanest welfare system in Europe in terms of how it treats those who are unemployed”.
He said: “The level of unemployment benefit has not risen in real terms for more than 50 years whilst the level of earnings has gone up two and half, three times, so the level of benefits is way below where it use to be relative to earnings.”
