Chancellor Jeremy Hunt has dealt Conservatives on the right desperate for tax cuts a major blow, saying they will be “virtually impossible” at the looming autumn Budget.
A surprise fall in inflation in August and government borrowing coming in lower than expected had raised Tory hopes that Mr Hunt would be able to offer tax cuts in November.
But the chancellor has still had some “frankly very difficult decisions” as he pushes on with stringent measures to balance the books and help bring down inflation.
Former Tory PM Liz Truss is among those on the Tory right demanding that Rishi Sunak and his chancellor bring down the tax burden at autumn statement on 22 November.
Mr Hunt said there was no “extra headroom” to cut taxes as he prioritises Rishi Sunak’s pledge to halve inflation this year, to a level of around 5.3 per cent.
“I really, really wish it was true but unfortunately, it just isn’t,” he told LBC’s Tonight with Andrew Marr. “If you look at what we are having to pay for our long-term debt, it is higher now than it was at the Spring Budget.”
Pleading for patience from Tories on the right, the chancellor added: “I wish it wasn’t, it makes life extremely difficult – it makes tax cuts virtually impossible, and it means that I will have another set of frankly very difficult decisions.
“All I would say is, if we do want those long-term debt costs to come down, then we need to really stick to this plan to get inflation down, get interest rates down,” said Mr Hunt.
“I don’t know when that’s going to happen. But I don’t think it’s going to happen before the autumn statement on November 22, alas.”
The Bank of England’s holding of interest rates for the first time in almost two years, leaving them unchanged at 5.25 per cent on Thursday, meant no adding to the cost of national borrowing.
A surprise fall in inflation to 6.7 per cent in August and government borrowing coming in lower than official forecasts that month had also shifted expectations.
Low-tax Tory MPs have been pushing for income tax cuts. But it looks as if they may have to wait until the Spring Budget – when the government is expected to try to find headroom for tax cuts ahead of the general election.
The chancellor is reportedly considering making real-terms cuts to benefits at the autumn statement. The government has been warned that failing to hike benefits with inflation would be “catastrophic” for hard-pressed families.
Mr Hunt and Mr Sunak are also said to be mulling a “tweak” to the triple lock to limit costs, meaning pensioners may not get a bumper 8.5 per cent increase in the state pension, with an increase of around 7.8 per cent instead.
Meanwhile, Samuel Tombs, of Pantheon Macroeconomics, was among the many economists and investments experts saying the Bank of England is “probably done” with interest rate increases – with 5.25 per cent now expected to hold as the base rate for an extended period.
The property market response with relief to the announcement. Riz Malik, director of mortgage broker R3 Mortgages, said: “This is quite simply fantastic news. The Bank of England eventually got the memo that their consecutive rate hikes risk sending the UK into an economic ice age.”