Chancellor Jeremy Hunt has expressed that delivering tax cuts in the UK would be “virtually impossible” until the economy shows signs of improvement. Calls for tax reduction measures in the November Autumn Statement have arisen due to a more optimistic economic outlook and the challenges posed by the high cost of living.
During an interview on LBC, Mr. Hunt acknowledged the substantial debt burden on the country, which has led to some “very difficult decisions.” The UK’s current debt stands at 98.8% of GDP, a level not observed since the early 1960s.
As the Conservatives trail behind Labour in opinion polls and with a general election expected as early as next May, a debate has emerged within the party about how to regain political ground. Many Conservative MPs argue that maintaining historically high tax levels, particularly given the high cost of living, could be a political misstep. They are pushing for tax cuts or, at the very least, a clear plan for achieving them.
Decrease in Inflation
A slight decrease in inflation last month led the Bank of England to keep interest rates steady at 5.25%, contrary to expectations of further incremental increases. This decision prevented an increase in the cost of national borrowing.
However, Jeremy Hunt emphasized that the cost of servicing the country’s debt remains higher than when he presented the Spring Budget in March, leaving no room for “extra headroom” for tax reductions. He described the situation as “extremely difficult” and stated that tax cuts were virtually unattainable.
He highlighted the importance of adhering to a plan to reduce inflation and interest rates to bring down long-term debt costs. Mr. Hunt admitted uncertainty regarding the timing of these changes, but he did not foresee them happening before the November 22 Autumn Statement.
While the consideration of tax cuts is currently off the table, the Treasury is preparing the public for another fiscal event in which significant commitments are unlikely. The government continues to prioritize further reducing inflation. Inflation for August stood at 6.7%, lower than anticipated but still well above the 2% target level.
It’s worth noting that tax cuts typically stimulate demand in the economy, which could potentially contribute to a resurgence in price increases to levels observed earlier this year.