Latest figures suggest Government finances have more leeway than first thought, and the upcoming Budget might just hold a few surprises
Source - Daily Telegraph 17/01/23
How bad are the Government’s finances, really? Conservative MPs are getting twitchy about a flow of news in recent days that suggests the economy is not in as bad a place as Rishi Sunak and Jeremy Hunt have tried to convince us.
Last week the Bank of England disclosed that it had dropped all of the £19.3 billion of gilts purchased last autumn to stabilise the UK debt market.
Added to that, the Bank said it had made £3.8 billion in profit from the affair. This cash will eventually make its way to HM Treasury.
That came a day before economists said the Treasury will bank an £11 billion windfall from a stronger-than-expected economy which grew 0.1 per cent in November, largely on the back of football fans following the progress of England and Wales in the World Cup.
And MPs are already noting that the warmer than expected winter means that the cost of the Government’s support for households’ energy bills is likely to be less than expected.
This all means that they expect Mr Hunt to have rather a lot more cash to spare than he might have expected when he unveils his Budget in eight weeks time on March 15.
And so Conservative MPs are already starting to wonder whether Hunt can go a bit further on tax cuts.
The hot money is on a cut to the base rate of income tax to 19p (costing £4.2 billion over four years to 2026/27) or even changes to off-payroll working or IR35 rules (costing £6 billion over four years).
Or how about – hold onto your hats – going ahead with the abolition of the 45p tax rate after all (at a cost of £4.2 billion over four years).
The last one is the most political and therefore the most unlikely. But many think the reforms to IR35 are well overdue to boost economic activity and productivity.
And Mr Sunak, when he was chancellor at the last Budget in March 2022, said he would cut the basic rate of income tax by 1p in spring 2024. And don’t forget Labour’s position set out last September is to cut the basic rate of income tax to 19p.
Jeremy Hunt – as you might expect – is having none of this chatter. Sources close to the Chancellor stressed on Tuesday morning that the economy is still projected to enter recession – and this, of course, means higher unemployment and lower tax revenue.
Add to this the fact that lower gas prices will mean less gained in windfall tax revenue, even though the Treasury insists that it does not directly receive the £3.8 billion profit (but it will eventually).
With new figures out on Tuesday showing that wages are lagging far behind inflation, and unemployment ticking up, Conservative MPs need some good news to cheer voters. Tax cuts could be the answer for the Tories, at least politically.
One veteran Brexiteer tells me: “He has to give us something before the local elections [in May].”
A younger Red Wall-er elected in 2019 chimes in: “Why not cut the base rate to 19p and go ahead with the freeze on fuel duty. I can sell that to my constituents.”
And right on cue, I understand that Liz Truss, the former prime minister, is planning on making her first intervention since quitting office before the Budget. You can be sure it will be about tax and the need to get the economy growing again.
Yes folks. “Trussonomics” – which most Tories support as long as the policies can be funded properly – is not as dead as you might think. Although it might need a rebrand.
Conservative MPs are desperate for some sort of vision from the Prime Minister to match Boris Johnson’s call for tax cuts last week. And this pressure will just grow and grow.
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