Vague tax cut plans show that Sunak is far from ready for an early election

By | March 9, 2024

(Bloomberg) — Jeremy Hunt‘s budget left his Conservative Party convinced that the government is still a long way from calling an election. There was little surprise, and the closest he came to pulling the proverbial rabbit out of his hat — an idea to eliminate a major payroll tax — caused 48 hours of confusion.

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Government officials now expect another budget event later this year ahead of the election, when lower inflation and interest rate cuts could give the finance minister more room for further tax cuts. That could potentially include an income tax cut, as some have Sunak advisers have been seeking, and combined with, a manifesto providing more detail on Hunt’s ambition to abolish national insurance contributions altogether.

Most Tories do not expect Prime Minister Rishi Sunak to call a snap election in May, despite persistent rumors in Westminster that he has repeatedly refused to overturn them. An MP said that with a 27-point lead over Labor in a YouGov poll published on Friday, they agreed with former Conservative Chancellor George Osborne’s assessment that an early election would be “insane”.

Yet Hunt’s performance raised another question among Tory lawmakers: even if the election were postponed much later – Sunak could wait until January if he wanted – will the Prime Minister and Chancellor have something up their sleeve to avoid defeat to prevent?

Allies say the pair share the view that income tax and national insurance mean Britons face unfair double taxation on work. The Tories will include in their manifesto a plan to completely abolish national insurance in the long term, people familiar with the matter say.

Despite Hunt raising the idea in post-Budget interviews that the solution could be to merge the two levies, that will not be the plan, they said.

Conservative advisers also want to promise more immediate cuts to income tax, and possibly other areas such as stamp duty on property. These will form the centerpiece of their manifesto, depending on what is deemed politically advantageous by Sunak’s cabinet and deemed affordable by the Treasury.

That aim is to create an ideological divide between the economy and Labour, which the Tories will try to portray as supporters of higher taxes and a bigger state. This is despite the Office for Budget Responsibility finding that Hunt’s budget will see Britain’s tax burden rise to its highest level since 1948.

One minister said it was still Sunak’s plan to hold the election later this year and hoped something would happen before then to move the election. While fall is most likely, July is also possible, they said. Other people familiar with the matter said detailed work on the manifesto policy has not even begun.

A Downing Street spokesman declined to comment on the manifesto, referring to Sunak’s comments on Thursday. “I was very clear about this at the start of the year and said my starting point for the election would be in the second half of the year – nothing has changed since then,” Sunak told the BBC.

A major reason for the talk of an early vote is that officials have been told by their bosses to postpone bigger projects that run until after May. Still, this could simply reflect the fact that the government has little major policy work planned, one official said.

But while Hunt got the budget done without causing a Liz Truss-style market crisis or a public backlash from Conservative MPs, some Tories were privately critical of Downing Street’s approach.

Several MPs described the focus on tax cuts as a “core vote” strategy designed to prevent a large Labor majority, rather than something that would shift the dial among swing voters. That was essentially admitting defeat, someone said.

Others called the strategy incoherent, noting that while tax cuts appealed to part of the Tory base, the budget left pensioners – statistically the most likely to vote Conservative – worse off. A core voting strategy that made the core votes poorer, is how one MP described it. Labor officials said it gave them an opening.

“There is no clamor from the general public for tax cuts, and many are squeamish about potential cuts to public services, which are already seen to be on their knees,” said Scarlett Maguire of pollster JL Partners. She said the strategy could work with voters who currently say they would vote for Reform UK, or who are unhappy with the government but still prefer the Tories to Labour. “These are the groups that are more likely to support tax cuts.”

Some Conservatives also have doubts about abolishing national insurance. A Tory strategist said he had provoked Labor accusations over reckless tax-cutting measures and the opposition party would turn its attention back to Truss’s disastrous premiership. That would be especially damaging because the Conservatives want to focus the campaign on Labour’s own spending plans.

Meanwhile, some Sunak allies are urging the Prime Minister to make a dramatic pitch to voters, and to replace Hunt with a new face to amplify the message, possibly Energy Minister Claire Coutinho. Other Tories rejected the idea, saying Coutinho failed to gain recognition among voters and that the idea had little merit other than promoting an ally to the Sunak Cabinet.

More broadly, however, the mood in the party is flat as MPs realize that no amount of tax cuts or smart spending traps for Labor is likely to be enough to change momentum, a Conservative lawmaker has said. Voters just want change, they said. The evidence shows that Sunak intends to keep them waiting.

–With help from Lizzy Burden.

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