Sunak pins political hopes on Thatcherite tax-cutting package

Rishi Sunak will use the Autumn Statement on Wednesday to kickstart a Thatcherite tax-cutting drive as he tries to revive his premiership.

The Prime Minister has been considering plans to cut National Insurance, raise the 40 per cent income tax threshold and reduce inheritance tax between now and the general election.

Measures that would boost economic growth without fuelling inflation, such as a business investment tax cut and tax changes to support workers, are being prioritised in the announcement.

Others are expected to be unveiled in the Budget next spring, ahead of an autumn general election.

On Monday, in an unusual move, the Prime Minister delivered a speech on the economy just two days before the Autumn Statement will be unveiled by Jeremy Hunt, the Chancellor.

He confirmed that tax cuts were coming, while insisting it would not be possible to “do everything all at once”. 

Mr Sunak said: “Now that inflation is halved and our growth is stronger, meaning revenues are higher, we can begin the next phase and turn our attention to cutting tax.

“We will do this in a serious, responsible way based on fiscal rules to deliver sound money and alongside the independent forecasts of the Office for Budget Responsibility. And we can’t do everything all at once. It will take discipline and we need to prioritise. But over time, we can and we will cut taxes.”

He stressed that he was focused on “cutting tax and rewarding hard work”. 

As well as tax cuts, the Autumn Statement is expected to include welfare reforms designed to better incentivise work, with harsher penalties for those on benefits who do not look for a job, and tighter requirements for being signed off sick.

Hundreds of thousands of people with mental health or mobility issues will be told to look for opportunities to work from home or face having their benefits reduced, The Times reported.

“We believe in the inherent dignity of a good job, and we believe that work, not welfare, is the best route out of poverty,” Mr Sunak said in his speech. 

The Telegraph has been told that the pensions triple lock will be untouched, with state pensions rising in line with average earnings, in a boost to 12 million older Britons.

The Prime Minister sees his approach – first cutting inflation, then cutting tax – as following that of Margaret Thatcher, as he seeks to cast himself as her ideological heir.

He had faced anger from MPs on the Right of his party last week following the sacking of Suella Braverman as home secretary and with the Tories still languishing behind Labour in the polls.

Mr Sunak also used his speech on Monday to launch a fresh line of attack on Labour, warning that Sir Keir Starmer’s borrowing plans would provoke a fallout similar to that caused by Liz Truss’s mini-budget last autumn.

The Prime Minister singled out Labour’s plans to eventually invest up to £28 billion a year in green projects, saying it “makes the same economic mistake as last year’s mini-budget”.

Focus on growth

The speech marked a substantial change in Mr Sunak’s economic approach, with the focus now on growth rather than reducing inflation, after achieving his promise to halve the rate at which prices are rising.

It also hinted at the economic dividing lines that will be drawn in the election campaign to come, with No 10 insiders arguing the differences between the two main political parties are much starker than appreciated.

Mr Hunt, who appeared at a CBI event in London on Monday, also struck an upbeat note on the state of the economy. He said: “I feel a lot more positive about the UK economy than I did a year ago when I came in. The biggest reason is because we have managed to halve inflation – 11.1 per cent inflation, which it was this time last year, is terrifyingly high. We’ve had to do some very difficult things to get it back under control but I hope now people can see we are making progress on that, I will be focusing on growth.”

The Treasury has more money to play with in the Autumn Statement than was expected, with persistent inflation leading to higher tax revenues than forecast. The so-called “fiscal headroom” had been £6.5 billion in spring, but forecasters now believe it is £25 billion.

But Mr Sunak’s embrace of tax cuts may come too late as he faces major political challenges. In recent weeks the Prime Minister’s rebrand at the Tory conference as the “change” candidate, watering down of net zero plans and King’s Speech legislative plans have not altered the polls.

Opinion polls have the Conservatives 22 percentage points behind Labour on average, the same gap as a year ago, when Mr Sunak was a few weeks into his premiership.

Mr Sunak, Mr Hunt and their advisers have spent weeks debating which tax cuts should be unveiled on Wednesday and which are better timed for next spring, when the election is closer.

On Monday, the Prime Minister stressed that he wanted tax cuts that would boost economic growth, with the focus on improving the “supply” side rather than demand. He also said tax cuts must not fuel inflation. As such, business taxes are set to be a major focus, with “full expensing”, which allows companies to claim back 25p for every £1 invested, likely to be continued beyond 2026.

Mr Sunak’s decision to group “cutting tax and rewarding hard work” together in his speech has led to speculation that a National Insurance reduction of some form could also be imminent. Mr Sunak’s previous decision to raise the rate to fund Boris Johnson’s social care plan triggered a fierce Conservative backlash.

The Prime Minister is personally interested in raising the 40p income tax threshold, but some Government figures predicted that will not be unveiled on Wednesday. 

Some Tory MPs want him to revive the plans, but on Monday it was unclear whether any income tax cut had made it into the final Autumn Statement package.

On Monday, the Resolution Foundation, a leading economic think tank, said that a cut in the basic income tax rate was the “most likely” personal tax cut to be unveiled in the Autumn Statement.

Stamp duty cuts have been deemed by Treasury officials as inflationary, so are not expected to be unveiled. A decision on inheritance tax cuts is also expected to be pushed back to spring.