Tories ‘Alarmed’ by High Taxes Ahead of Unlikely Cuts Announcement by Chancellor

John Glen MP, chief secretary to the Treasury, leaves after a Cabinet meeting at 10 Downing Street in London on Oct. 17, 2023. (Dan Kitwood/Getty Images)

The chief secretary to the Treasury has acknowledged “alarm” among Conservatives over high taxes, but warned “this is not the time to ask for tax cuts.”

John Glen, who previously served as Treasury minister under then-Chancellor Rishi Sunak, said that he is also concerned with the amount of tax facing British households and businesses.

Taxes will amount to around 37 percent of national income by the time of the next general election. This is the highest level than at any time since the 1940s.

Continuous interest rate rises mean that the government must pay more on its debt, Mr. Glen said.

“Debt interest spending in 2022 to 2023 was £112.1 billion; that’s more than 6 percent of GDP. That’s higher than any G7 nation. Those are the facts. They’re unpalatable facts, but they can’t be avoided,” he said.

His remarks, published in The House magazine, come ahead of the Autumn Statement, which will be delivered by Chancellor Jeremy Hunt on Nov. 22.

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Mr. Hunt has previously signalled that tax cuts are “virtually impossible,” given the size of the UK’s long-term debt.

At the end of September, the government debt was equivalent to 97.8 percent of GDP and 89.3 percent of GDP if Bank of England debt is excluded.

Whitehall borrowed £82 billion during the first half of 2023/24, which was £15 billion more than in the same period last year.

Faced with very high spending on debt interest, the government is in no position to offer fiscal giveaways, said the Institute for Fiscal Studies (IFS).

Even with tight spending settlements and further big tax rises in the pipeline, the national debt will be stuck at close to 100 percent of national income, warned IFS Director Paul Johnson.

Chancellor of the Exchequer Jeremy Hunt departs 11 Downing Street in London on Sept. 13, 2023. (Aaron Chown/PA)

Primary Concern

The Treasury would “love to be able to cut more” but its primary consideration is inflation, explained Mr. Glen.

More borrowing is itself inflationary, said Mr. Hunt earlier this year, noting the importance of taking responsible decisions on public finances.

“It means recognising that bringing down inflation puts more money into people’s pockets than any tax cut,” the chancellor said.

Whitehall has been set on halving inflation by the end of the year. The latest BoE estimates of 4.5 percent inflation rate by the end of 2023 would see that target achieved. The fall of inflation would, however, be conditional and would require a bank rate of 5.25 percent and a gradual decline to 4.25 percent.

High interest rates and increasing geopolitical risks create an economic environment unfavourable for delivering tax cuts, said Mr. Glen.

Mr. Sunak’s government will be raising upwards of £100 billion more in tax revenues in 2024, which is the equivalent of £3,500 per household, according to the IFS.

But according to the National Institute of Economic and Social Research, the UK’s net debt as a percentage of GDP will fall below 3 percent by 2027–28.

“This means that there is some limited fiscal space in 2024, which we feel should be used to increase public investment – particularly in infrastructure and housing – rather than to cut taxes,” the institute said on Nov. 8.

If no tax cuts are announced in the Autumn Budget, the chancellor still has the option to deliver them in the spring, in time to potentially swing votes ahead of the next general election.

With the Conservatives lagging behind the opposition Labour Party in opinion polls, Mr. Hunt will have to carefully balance the economic and the political cost of tax cuts.

A recent poll by Survation showed that 52 percent of the public link the Conservative Party with higher taxes, compared to 42 percent for Labour.

Among the respondents, 77 percent believed they would be hit with the same or higher tax if Mr. Sunak wins the election. The figure dropped to 66 percent in the scenario where Sir Keir Starmer becomes the next prime minister.