Wednesday, December 1, 2021

Rishi Sunak wants to cut taxes, but Boris Johnson and inflation could undo his promises

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The Prime Minister shares the Chancellor’s wish for low taxes, but also tends to throw money at problems

In some ways, the budget and spending review was no different. Rishi Sunak spoke of his fondness for low taxes even though he was mostly spending money – increasing the departments’ daily expenses by £ 150 billion, the largest increase in the last century. According to the plans of this government, the tax burden is to reach the highest level since the beginning of the 1950s.

It has become a joke among ministers that when the Chancellor speaks of his preference for low taxes, it is more because he wants to do the opposite: increase taxes or at least enlarge the state.

But this time, senior Tories are taking more seriously Sunak’s assertion in the House of Commons that “by the end of this Parliament, I want taxes to go down, not up”.

It’s not just the fact that Sunak offered a tax cut – in the form of a change in the interest rate on universal loans.

Speaking to MPs at a meeting of the Tory backbencher’s committee in 1922, Sunak went beyond his Commons statement and hardened his language. He said he hoped to have sent a “clear and unambiguous” message through the budget of his intention to “start the tax cut process”.

The Chancellor went on to signal a move away from spending, spending, spending. Sunak said that going forward, “every marginal pound we have should be invested in lowering people’s taxes, not spending more”. The comments went down well with Tory MPs, who have recently wondered what is conservative about the current Conservative Party.

Will Sunak keep his promises? Ultimately, it depends on a number of factors – some of which are beyond its control.

Improved forecasts for the recovery of Covid have given him the headroom to spend more and the opportunity to avoid cuts. But moving to a tax cut before the next election – which is the desire of both the Prime Minister and the Chancellor – requires focusing on that pursuit rather than giving in to more spending demands.

With the Institute for Fiscal Studies warning that ongoing cost pressures mean that increases in national insurance will in the long run not be enough to fund the NHS, there are many questions as to whether a move away from higher taxation will be possible.

There are already complaints about the funding for education announced on Wednesday, with the catch-up package smaller than many industry representatives (like former catch-up education tsar Kevan Collins) would like. Expect inquiries to keep coming in even after this spending spree.

Boris Johnson also shares the Chancellor’s desire for low taxes, but also tends to throw money at problems. Many Tory MPs have also got used to the fact that cash is the answer to problems.

The cost of living crisis is far from over and when the worst inflation warnings hit, everything will be more difficult for the Chancellor when it comes to his current balancing act.

After all, what is now considered a low-tax Tory is different than it was ten years ago. Covid has expanded the state and changed views on spending within the mainstream Tory party.

This means that even if Sunak manages to deliver on his pledges, his tax cuts will fall far short of what his party’s rights envisioned when the government won a majority.

Katy Balls is the Assistant Political Editor for The Spectator

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