UK Chancellor of the Exchequer Jeremy Hunt has ruled out “significant” tax cuts in the next budget as he put the top priority on reducing inflation.
In a speech at Bloomberg’s London headquarters on Friday, Hunt said reducing inflation was the “only sustainable way to restore industrial harmony” in Britain as he suggested tax cuts would have to wait.
“My party understands better than others the importance of low taxes in creating incentives and fostering the animal spirits that spur economic growth,” he said.
“Another Conservative insight is that risk-taking by individuals and businesses can only happen when governments provide economic and financial stability. So the best tax cut right now is a cut in inflation.”
Talking to the BBC after the speech, the chancellor said that it is “unlikely” that there will be room for any “significant” tax cuts in the next budget, which is to be unveiled in March.
Hunt, who became chancellor after former Prime Minister Liz Truss’s plan to fund massive tax cuts with government borrowing led to turmoil in the financial markets, said he is determined to show that the UK is responsible.
That means “showing the world, showing the markets that we are a responsible nation, that we can pay our way, that we can balance our books,” he said.
According to the latest figures released by the Office for National Statistics (ONS), UK public sector borrowing reached £27.4 billion in December 2022, the highest December figure since monthly records began in January 1993.
The figure was £16.7 billion more than the same month a year earlier, largely driven by a sharp rise in spending on energy support schemes and an increase in debt interest.
There has been ongoing debate within the ruling Conservative Party on how to develop the economy and improve public finances.
Last week, Tory MPs aligned with Truss’s tax-cutting agenda met for the first time as part of the “Conservative Growth Group.”
In a Daily Mail article, former Tory leader Sir Iain Duncan Smith argued the country is “already over-taxed and it is quite clear we cannot tax ourselves out of a recession.”
But Prime Minister Rishi Sunak insisted he does want to reduce taxation but argued the COVID-19 pandemic and Russia’s war in Ukraine mean he cannot do so yet.
On a visit to Lancashire on Jan. 19, he said: “We had a massive pandemic for two years, we had to shut the country down, do a bunch of extraordinary things that didn’t come cheap. Now we’ve got this war going on which is having an enormous impact on inflation and interest rates.”
Sunak said it “takes a bit of work” to get the state of the public finances to “where it needs to be.”
At a Cabinet away day on Thursday, Hunt warned the government must maintain its “disciplined approach” to the public finances.
Both Sunak and Hunt emphasised inflation was only predicted to fall because of the “tough decisions” taken in the autumn statement to stabilise the economy.
“The chancellor said it would be necessary to retain this disciplined approach in order to reduce inflation, because it is the greatest driver of the cost of living,” according to a readout of the meeting released by Number 10 Downing Street.
Hunt also used his Bloomberg speech to lay out a plan for Brexit to become a “catalyst” for growth, while announcing measures designed to increase prosperity outside of Southeast England and London.
The chancellor said he wanted to reverse what he called a “declinism” attitude in Britain, declaring that the country’s economy had “grown at about the same rate as Germany” since the 2016 Brexit referendum.
He said Brexit should be looked at as an opportunity to “create an economic environment which is more innovation friendly, and more growth focused.”
Addressing the government’s so-called levelling-up agenda, Hunt said a weakness of the economy is the “over-concentration of wealth in the Southeast.”
He said levelling-up formed part of one of his so-called four “E” pillars against which he would assess growth policies: enterprise, education, employment, and everywhere.
Promising to provide “high-potential but underperforming areas” with “advantageous fiscal treatment to attract new investment,” he said work on identifying the locations will start shortly.
As part of his “employment” pillar, Hunt encouraged those who had left the workforce during the COVID-19 pandemic to return, telling them: “Britain needs you.”
He said he will look at ensuring the “conditions necessary to make work worth your while” were in place so that returning to employment was an attractive proposition.
Commenting on Hunt’s speech, Labour’s shadow chancellor Rachel Reeves said: “Thirteen years of Tory economic failure have left living standards and growth on the floor, crashed our economy, and driven up mortgages and bills.
“The Tories have no plan for now, and no plan for the future. It’s time for a Labour government that will build a better Britain.”
PA Media contributed to this report.