UK Prime Minister Rishi Sunak plans to offer pre-election tax cuts in next year’s budget if inflation falls below 3% this year, people familiar with his thinking said.
Signaling his optimism at a pre-budget Cabinet meeting on Wednesday, Sunak told ministers: “As Conservatives we all want to reduce the size of the state and cut taxes,” one of the people said. They all requested anonymity disclosing private discussions.
Projections this week from the Office for Budget Responsibility see inflation dipping to 2.9% by the end of 2023. So along as wider economic circumstances allow, that would make tax cuts possible at the budget due in spring 2024, one of the people suggested.
The prospect will be welcomed by members of Sunak’s governing Conservatives who have pushed repeatedly for the premier to restore his party’s reputation as one of low taxes. Instead, he and Chancellor of the Exchequer Jeremy Hunt have overseen increases leading to the country’s highest tax burden since World War II.
It would also give a fillip to the party’s electoral prospects ahead of a national vote that Sunak must call by January 2025 at the latest. The Tories currently trail the Labour opposition by about 20 points in recent polls, a considerable deficit to make up.
Nevertheless, some Tory MPs believe Sunak could hold an election as soon as May 2024 to capitalize on any tax offer in the budget.
It is still unclear how the Treasury would find the money, as Hunt’s budget this week pushed his fiscal rules to the limit and left himself with little wiggle room going forward.
Sunak could revive a pledge he made in his first leadership election campaign last summer to cut income tax by a percentage point to 19% in 2024, and to reduce the basic rate to 16% by 2029, another person familiar said.
The policy was dropped in the Autumn Statement as Hunt sought to repair the wreckage left by former Prime Minister Liz Truss.
Hunt rejected calls from the right-wing of the governing Conservative Party to reverse rises in personal and business taxes at this week’s budget.
--With assistance from Adam Blenford.
©2023 Bloomberg L.P.
