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The Chancellor said that ‘supposedly self-funding tax cuts’ may be ‘highly seductive’ but he labelled the approach ‘irresponsible’ and not ‘serious or credible’.
Mr Sunak said he is committed to delivering ‘a lower tax economy’ but will do so in a ‘responsible way’ which takes into account the UK’s ‘long term challenges’.
Citing an ageing population, the need for higher health spending and the long term cost of fighting coronavirus, Mr Sunak said it is ‘hard to cut taxes at a time when demands on the state are growing’.
He made the comments as he delivered the annual Mais lecture at the Bayes Business School in central London.
The remarks will be seen as a warning to ministers that they need to rein in their spending demands if they want tax cuts before the next general election in 2024.
The comments will also be viewed as shot across the bows of Tory MPs who are calling for the Government to delay a National Insurance hike.
Chancellor Rishi Sunak today outrighted rejected calls from Tory MPs for immediate tax cuts
The Chancellor said that ‘supposedly self-funding tax cuts’ may be ‘highly seductive’ but he labelled the approach ‘irresponsible’ and not ‘serious or credible’
The UK tax burden is set to rise to the equivalent of 36.2 per cent of gross domestic product by 2026/27 after a series of tax hikes, according to Office for Budget Responsibility forecasts.
That will be the highest level seen since Clement Attlee’s post-war Labour government in the early 1950s.
Rising gas prices and rampant inflation are also putting massive pressure on household budgets, prompting calls for Mr Sunak to do more to help struggling families.
In today’s speech, Mr Sunak said taxes must be cut in a way that is responsible and sustainable.
Criticising those advocating ‘unfunded tax cuts’, the Chancellor said: ‘I firmly believe in lower taxes. The most powerful case for the dynamic market economy is that it brings economic freedom and prosperity and the best expression of that freedom is for all of us to be able to make decisions about how to save, invest or use the money we earn.
‘The marginal pound our country produces is far better spent by individuals and businesses than government.
‘So I am disheartened when I hear the flippant claim that tax cuts always pay for themselves. They do not.
‘Cutting tax sustainably requires hard work, prioritisation and the willingness to make difficult and often unpopular arguments elsewhere and it is hard to cut taxes at a time when demands on the state are growing.’
Mr Sunak said the UK population is ageing and older people deserve ‘dignity in retirement’ but ‘we need to acknowledge that this requires public spending on pensions, health and social care unless political leaders are prepared to have difficult conversations with the public’.
The Chancellor also said that the ‘legacy of Covid’ will add ‘annual extra costs in the billions of pounds’ as the Treasury has to pay for vaccines and testing.
Mr Sunak said: ‘As a Conservative chancellor, I am often urged to follow Thatcher and Lawson’s legacy. They are sound lodestars to navigate by.
‘But we sometimes only hear a partial account of their approach. Observers are quick to highlight the downward trajectory of the tax burden during the 1980s which was clearly a historic and necessary achievement.
‘But they are perhaps less quick to remember that only once the deficit was under control did they begin cutting taxes.’
He added: ‘I am going to deliver a lower tax economy but I am going to do so in a responsible way, and in a way that tackles our long term challenges.’
Mr Sunak took aim at people who believe that tax cuts can miraculously boost economic growth and those who believe the answer is for the government to spend more money.
He said: ‘The trap of both of those ideas, that we can simply grow the economy with more public spending or supposedly self-funding tax cuts is that they are both highly seductive, easy answers.
‘Neither are serious or credible. Neither on their own will transform growth. And because they ignore the trade-offs inherent in economic policy, both are irresponsible.’
The UK tax burden is set to rise to the equivalent of 36.2 per cent of gross domestic product by 2026/27, according to the Office for Budget Responsibility
Many Tory MPs are urging the Government to scrap its proposed National Insurance hike which is due to take effect from April
The Chancellor’s rejection of immediate tax cuts is likely to anger the Tory Right, with MPs adamant that the burden on families must be reduced.
Several senior Conservatives, including Jacob Rees-Mogg and former Brexit minister Lord Frost, are pushing for tax cuts now to boost the economy.
The speech comes as Mr Sunak faces intense pressure to scrap the £12billion National Insurance rise planned for April.
Some senior Tories have backed the Daily Mail’s Spike the Tax Hike campaign to have the manifesto-busting rise postponed to ease pressure on the cost of living.
The tax increase was agreed last September after the Chancellor insisted the huge cost of clearing the NHS waiting list, coupled with Boris Johnson’s pledge to tackle social care, could not be funded from increased borrowing.
Mr Sunak has told MPs privately that he is determined to cut taxes before the next election – and is targeting a headline-making cut in the basic rate of income tax.