By Alistair Smout
LONDON (Reuters) -British Prime Minister Rishi Sunak said his government would turn to cutting tax after a fall in inflation, speaking ahead of this week’s budget update when finance minister Jeremy Hunt is expected to announce how he will speed up the stagnant economy.
“Now that inflation is halved and our growth is stronger, meaning revenues are higher, we can begin the next phase and turn our attention to cutting tax,” Sunak – who is expected to call an election in 2024 – said in a speech on Monday.
Under pressure from within his traditionally low-tax Conservative Party, Sunak said his government needed to prioritise lowering the tax burden but stressed he would not repeat the unfunded tax cut plan that his predecessor Liz Truss announced last year, triggering turmoil in bond markets.
Sunak said the government would cut taxes over time and would not do anything that added to inflation.
“You can trust me when I say we can responsibly start to cut taxes,” he said.
Data last week showed inflation fell to 4.6% in October, allowing Sunak to declare that he had met his promise to voters to halve price growth this year even if much of the fall was due to the comparison effect of last year’s surge in gas prices.
Conservative lawmakers have long called on Sunak to cut taxes to help reduce the gap in the opinion polls with the opposition Labour Party before an election expected next year.
Many Conservatives are also angry about a string of tax increases introduced by the government to help stabilise the public finances after the economic shocks from the coronavirus pandemic and the surge in energy prices.
But his promise on Monday might not unite Sunak’s fractious party after one of his other key pledges – to tackle illegal immigration – was all but dashed by a Supreme Court ruling last week which rubbished a deal to deliver asylum seekers to Rwanda.
In his speech, he sought to turn fire on Labour’s plans to borrow billions of pounds more each year to fund Britain’s net-zero investments.
“This makes the same economic mistake as last year’s mini-budget. Blowing tens of billions of pounds on unfunded spending is just as dangerous as blowing tens of billions of pounds on unfunded tax cuts,” he said.
Sunak declined to comment on which taxes his government was likely to cut.
He also said the government would focus on fixing so-called supply side issues which have weighed on the economy, chief among them a shortage of workers to fill vacancies.
“Right now, around 2 million people of working age are not working at all. That is a national scandal,” Sunak said, adding that he wanted to change the country’s system of benefits for working-age adults to get more of them into work.
Sunak said building a sustainable energy network and a “world-class” education system were other key components of his long-term economic growth plan.
Hunt is due to make his Autumn Statement budget update in a speech to parliament on Wednesday.
(Reporting by Sarah Young and Alistair Smout, Writing by William Schomberg and Kylie MacLellan; Editing by Kate Holton and Christina Fincher)