Chancellor Jeremy Hunt vowing to get a grip of inflation before tax cuts
(Picture: PA Wire)Ministers hope Chancellor Jeremy Hunt can announce tax cuts in the autumn ahead of a General Election a year later.
They believe a drop in energy prices will feed through into lower inflation and a fall in interest payments on the national debt.
It could also deliver a shorter term boost to Treasury coffers which could be used to fund more immediate challenges facing the Government.
Mr Hunt’s Autumn Statement put Britain on track for the highest tax burden since the Second World War.
But both he and Rishi Sunak insist they want to cut taxes.
Official figures last week showed GDP grew by a surprise 0.1 per cent in November, partly fuelled by a boost for pubs and bars during the World Cup.
The small increase was better than the 0.3 per cent drop expected by the City, and raised hopes that Britain may avoid sliding into recession in 2022, and that the Chancellor may get some “headroom” for tax cuts to be announced later this year.
They could be brought in then or in the spring, ahead of a General Election which might be held in autumn 2024.
This timescale would give the Prime Minister more time, than a spring election, to deliver on his key pledges to get NHS waiting lists down, tackle the “small boats” migration across the Channel, reduce the UK’s debt, get the economy growing and halve inflation.
“If the economy is stronger because we’ve stabilised the Government, we might be able to return to the issue of tax cuts soon,” said one minister.
“If we were able to do that in the autumn..we can see a path to winning the election.
“It’s a narrow path.”
Key factors would be an improving economy, “persuading people to trust us with the NHS”, possibly an easing of the Ukraine war and Sir Keir Starmer “making mistakes,” he added.
He stressed: “It is all about momentum. If we go into 2024 putting some money back into people’s pockets then it will be all to play for.”
However, latest figures on Wednesday showed inflation falling only slightly, to 10.5 per cent in December, down from 10.7 per cent the previous month.
If it remains “sticky”, it could force the Bank of England to hike interest rates higher, with some economists predicting they could reach 4.5 per cent this year.
This could deepen the shallow recession still expected by some economic experts this year and also hit the public finances with billions more being spend on servicing the national debt.
If Mr Hunt did get a boost to Treasury coffers, he is also likely to be under pressure to use the money to boost public services, including through pay rises for nurses and other workers, rather than for tax cuts.
Responding to the inflation figures on Wednesday, the Chancellor said: “High inflation is a nightmare for family budgets, destroys business investment and leads to strike action, so however tough, we need to stick to our plan to bring it down.
“While any fall in inflation is welcome, we have a plan to go further and halve inflation this year, reduce debt, and grow the economy - but it is vital that we take the difficult decisions needed and see the plan through.”
MPs are not expecting any significant tax-cutting announcements in the Budget, on March 15, given the state of the economy and public finances.
