Rishi Sunak’s message to Tories: I will cut taxes before next election

The Chancellor had unveiled a big-spending Budget which increased taxation to levels not seen since the end of the Second World War.
Rishi Sunak has reassured Tory MPs that taxes will come down after this big-spending Budget (Victoria Jones/PA)
PA Wire
Sam Blewett27 October 2021

Rishi Sunak has sought to reassure Tory MPs that he aims to cut taxes before the next election after unveiling a Budget that increases taxation and spending to levels not seen for decades.

The Chancellor used an improved economic outlook to set out £150 billion of departmental spending as well as help for people on low incomes to tackle the rising cost of living.

He announced tax cuts for businesses, extra cash for hospitals, a softening of the cut to Universal Credit and a freeze for fuel duty as the nation recovers from the Covid-19 pandemic.

But on top of previously announced increases in corporate and personal taxation, the Office for Budget Responsibility (OBR) said the Budget would leave the overall tax burden at its highest since the final period of Clement Attlee’s post-war Labour administration 70 years ago.

The economic forecaster also said the plans will take public spending to the highest share of the economy since the late 1970s, before Margaret Thatcher took power for the Tories

In an attempt to reassure nervous Conservatives, Mr Sunak told the Commons: “By the end of this Parliament, I want taxes to be going down not up.”

He went further in a meeting of the 1922 Committee of Tory backbenchers by telling them he wants to use “every marginal pound” in the future to lower taxes rather than increase spending.

(PA Graphics)
PA Graphics

Key announcements in the Budget included:

– A £2.2 billion package of Universal Credit reforms to allow claimants to keep more of the benefit if they earn more from work.

– Some £7 billion worth of cuts to business rates following a review into the property tax, with the cancellation of next year’s increase in the rates multiplier and a 50% cut to next year’s rates for most retail, hospitality and leisure businesses.

– A major overhaul of alcohol taxation, including cutting the cost of Champagne and prosecco, which Mr Sunak said are “no longer the preserve of wealthy elites” from 2023.

– Pubs will be helped with a new lower rate of duty on draught products, knocking around 3p off a pint as part of the reforms.

– Previously planned rises in alcohol and fuel duties will also be scrapped.

– A cut in the surcharge levied on bank profits from 8% to 3%.

– Flights between airports in England, Scotland, Wales and Northern Ireland will be subject to a new lower rate of Air Passenger Duty from April 2023.

– Whitehall departments will receive a real terms rise in funding as part of the Spending Review, the Chancellor said, amounting to £150 billion by 2024/25.

Mr Sunak’s Budget will face further scrutiny on Thursday morning when the respected Institute for Fiscal Studies think tank publishes its comprehensive analysis.

He had promised “help for working families with the cost of living”, with the OBR expecting inflation to reach 4.4% but warning it could hit “the highest rate seen in the UK for three decades”.

The Chancellor was given some leeway for greater spending as a result of a stronger-than-expected recovery from the economic hit from coronavirus, with the OBR predicting the economy will return to its pre-Covid level at the turn of the year.

It also reduced the estimate of the long-term “scarring” caused by the pandemic from 3% of gross domestic product – or GDP, a measure of the size of the economy – to 2%.

(PA Graphics)
PA Graphics

The Budget follows the Government’s decision to increase national insurance contributions by 1.25 percentage points from April to help fund the NHS and social care and previously announced hikes in corporation tax rates.

With the economy growing and unemployment forecast to be lower than expected in March, the rising cost of living is the biggest headache facing Mr Sunak.

As well as previously announced increases in minimum wage rates, Mr Sunak promised changes by December 1 to the amount of extra earnings Universal Credit (UC) claimants can keep.

The move follows a widely-condemned £20-a-week cut in the benefit earlier in October.

(PA Graphics)
PA Graphics

The Chancellor dramatically reduced the UC “taper”, meaning that, instead of losing 63p of UC for every £1 earned above the work allowance, the amount will be cut to 55p.

The amount people can earn before starting to lose the benefit will also increase by £500.

Mr Sunak said the move would help “nearly two million families”, but Labour said the £20 weekly cut affected six million families.

The shadow chancellor, Rachel Reeves, said: “As he hits working people with the highest sustained tax burden in peacetime, he’s giving a tax cut to bankers who like to take short-haul flights while sipping Champagne.

“After taking £6 billion out of the pockets of some of the poorest people in this country, he is expecting them to cheer today at being given £2 billion to compensate.”

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