The Conservative leadership contest last year descended into one-upmanship over tax cuts. When Liz Truss set the pace with a long list of promises, the losing Rishi Sunak camp decided to pledge a 1p cut in income tax in April 2024, with a further 3p cut over the next parliament.
But when Sunak moved into No 10 following the debacle of the mini-Budget, those promises were quietly forgotten. Nonetheless, dangling the prospect of tax cuts before the next election has been key to maintaining a semblance of discipline among Conservative backbenchers. A penchant for tax cuts was Sunak’s redeeming feature as a Conservative in the hopeful eyes of some of his MPs.
[See also: Will Rishi Sunak sack Jeremy Hunt?]
But, in the Prime Minister’s mind, inflation was always a greater threat than higher taxes. And now his Chancellor has ruled out tax cuts at the Autumn Statement in an interview with the Financial Times. If that is true then the only major fiscal event before the next election is likely to be the Budget next spring. Even Hunt acting then is uncertain because Hunt has so explicitly tied tax cuts to inflation. As he put it: “We will not countenance tax cuts if they make the battle against inflation harder.”
Which in most cases they will. One question, therefore, is whether inflation will sufficiently fall by the spring to give the Chancellor the space to cut taxes. That’s uncertain. Another question is whether Hunt and Sunak can resist the clamour for tax cuts from their increasingly nervous and agitated backbenchers. And a third question is: if it’s not tax cuts, then what will the Conservatives’ flagship policy at the next election be?
This piece first appeared in the Morning Call newsletter; subscribe to it on Substack here.