Rishi Sunak has suggested the government cannot afford any immediate tax cuts, saying people are “not idiots” and understand what is unaffordable.
But the comments risked opening a fresh conflict with Conservative MPs who have been making the case for tax cuts in the spring budget, in light of improving economic forecasts and as a way to increase growth.
It comes after we reported Treasury insiders as saying the chancellor was not expected to announce any tax cuts in his fiscal statement in March. They said that boosting growth, bringing down inflation and reducing national debt were the government’s top priorities as it seeks to restore confidence among business and the public – and only then could taxes be reduced.
However, MPs who remained loyal to Liz Truss’s tax-cutting agenda are putting pressure on the Treasury for more radical plans – and suggested Truss could speak out in advance of the budget.
They claim there are stronger signs of economic recovery including recent sharp falls in global energy prices and projections that suggest UK inflation will fall considerably this year.
Asked about tax cuts while speaking to the public in Morecambe, Lancashire, Sunak said: “I’m a Conservative, I want to cut your taxes … I wish I could do that tomorrow, quite frankly, but the reason we can’t is because of all the reasons you know. You’re not idiots, you know what’s happened.”
Sunak said the pandemic and the war in Ukraine had left the state of public finances “not where it needs to be”. He added: “Trust me, that’s what I’m going to do for you this year, that’s what we’re going to do while I’m prime minister and if we do those things we will be able to cut your taxes.”
After the report, Conservative MPs reacted furiously to the prospect that there would be no consideration of early tax cuts.
The former Conservative leader Iain Duncan Smith told the Daily Mail: “We have got to get growth going. This government will sink without trace if we don’t get growth going by the middle of this year – we won’t have a hope of winning the election. We are already overtaxed and it is quite clear we cannot tax ourselves out of a recession.”
After Sunak’s remarks, several MPs privately said they were surprised at the language, with one former minister saying he was “not usually prone to that sort of response”. They said: “There appears to be increasing agreement that [Jeremy Hunt] the chancellor has a bit more headroom than he thought he’d have.”
Hunt is reported to have met northern Conservative MPs on Wednesday night where he stressed there was little cash available for either increased public spending or tax cuts.
On Thursday, Sunak’s economic strategy was strongly criticised by the entrepreneur Sir James Dyson, who said the government must use the spring budget to “incentivise private innovation and demonstrate its ambition for growth”.
Writing in the Telegraph, he said ministers seemed intent on imposing “tax upon tax on companies in the belief that penalising the private sector is a free win at the ballot box”.
“This is as shortsighted as it is stupid. In the global economy, companies will simply choose to transfer jobs and invest elsewhere,” he said.
“Our country has an illustrious history of enterprise and innovation, born of a culture which we are in the process of extinguishing. We have got through the worst of Covid but risk wasting the recovery.”
No 10 attempted to pour cold water on any row over tax, saying that Sunak had not called his Tory colleagues idiots. “He didn’t call anybody an idiot and he himself set out his ambitions to reduce the tax burden over time,” his spokesperson said.
“He said that the worst thing he could do is make promises he can’t keep and saddle a country with more debt. And he set out once again that his overall ambition is to reduce tax. But that needs to be when we have economic stability and inflation’s come down.”
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Prime Minister says people ‘not idiots’ and know why Chancellor cannot cut taxes