Chancellor Jeremy Hunt is set to clash with fellow Conservative MPs as he downplays the possibility of major tax cuts in the upcoming Budget. Despite expressing a desire to "lighten the tax burden," Hunt is tempering expectations regarding the scale of assistance for households.
Less Flexibility than Expected
Hunt's remarks have raised concerns among senior Tories, who fear that he will have less room to maneuver in the Budget than he did during the autumn statement. On January 20, he stated, "The plan is working. That’s why we need to stick to it. It means cutting taxes, not raising them." However, in a recent BBC interview, he indicated that the scope for tax cuts in the spring Budget might be limited compared to what was previously anticipated.
He explained, "It does not look to me like we will have the same scope for cutting taxes in the spring Budget that we had in the autumn statement. And so I need to set people’s expectations about the scale of what I am doing because people need to know that when a Conservative government cuts taxes, we will do so in a responsible and sensible way."
While Hunt emphasized the government's intention to lighten the tax burden, he also acknowledged the need for realism in terms of available resources.
Waiting for Final Forecasts
The Treasury is currently awaiting the final forecasts from the Office of Budget Responsibility, which will inform decisions on how any spare funds should be allocated. The forecasts are crucial in determining the government's ability to implement targeted tax cuts.
However, some Conservative MPs, such as Jacob Rees-Mogg, are advocating for tax cuts that they believe would stimulate economic growth. Rees-Mogg argued that the Chancellor should adhere to his Tory principles and reduce taxes, given the overly pessimistic nature of the OBR's forecasts.
Tory MP Jonathan Gullis echoed this sentiment, supporting income tax cuts and fuel duty relief to alleviate the financial burden on families. He argued that such measures would promote economic growth, job creation, and enable investments in vital public services.
The OBR's Credibility Questioned
This debate follows previous criticism of the OBR's forecasting accuracy. Last year, the financial watchdog's forecasts were likened to a "work of fiction." Chancellor Hunt condemned the organization, particularly its chair Richard Hughes, for making such claims.
He stated, "Those words are wrong and they should not have been said. The Government decides spending plans and spending reviews. The next spending review will start in April 2025, and obviously until that point when that spending review is done, we do not publish our spending plans. No government ever has."
PM Rishi Sunak's Perspective
Prime Minister Rishi Sunak, on the other hand, has indicated that there is more to come in terms of tax cuts, specifically mentioning the new National Insurance cuts. However, the International Monetary Fund cautioned against prioritizing tax cuts and instead advised focusing on public services.
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