Tory Rightwingers Push for Tax Cuts Amid Economic Downturn

Strategic Insights -

Liz Truss, the former Prime Minister, and her allies are pushing for tax cuts despite warnings from Chancellor Jeremy Hunt and Prime Minister Rishi Sunak that it is not the right time due to slower growth forecasts and lower tax revenues. The push for tax cuts comes ahead of Hunt's March Budget, where he is expected to prioritize controlling inflation and stabilizing the economy. Truss and her allies argue that tax cuts are necessary to generate growth, citing the UK's post-war high taxes as a hindrance to economic progress.

Key Takeaways:

  • The Tory right, led by Liz Truss, is pushing for tax cuts in the upcoming March Budget, despite warnings from Hunt and Sunak that it is not the right time.
  • Truss and her allies argue that tax cuts are necessary to generate growth, citing the UK's post-war high taxes as a hindrance to economic progress.
  • The Office for Budget Responsibility (OBR) has sent its economic forecast to the Treasury, showing a small downgrade in medium-term growth forecasts, which would lead to lower tax revenues.
  • The OBR now thinks the economy will be 0.5% smaller in 2027-28 than stated in the Autumn Statement forecast, with a 0.2 percentage point reduction in the forecast growth rate.
  • Treasury officials warn that lower wholesale gas prices are unlikely to lead to a large war chest for tax cuts, and interest rate projections still remain high.
  • The annual cost of government debt will not have fallen far, and officials are expecting lower revenues from oil and gas taxation as well as windfall taxes.
  • Government projections suggest that oil and gas revenues might fall by more than £10bn in 2023-24 on current prices, although the hit to the public finances would be much smaller in the medium term.
  • Despite the economic downturn, the official figures for the public finances this year are better than expected, with the OBR reporting that underlying public borrowing in 2022-23 was £11.3bn lower than expected.

Statistics:

  • 0.2 percentage point reduction in the forecast growth rate in 2027-28 (OBR).
  • 0.5% smaller in 2027-28 than stated in the Autumn Statement forecast (OBR).
  • £10bn potential fall in oil and gas revenues in 2023-24 on current prices (Government projections).
  • £11.3bn lower underlying public borrowing in 2022-23 than expected (OBR).
  • 3% downgrade in the OBR's economic forecast last year.

Sources:

  • The Times: First reported in The Times, these show a small downgrade in medium-term growth forecasts, which would lead to lower tax revenues.
  • Financial Times: Iain Duncan Smith told the Financial Times that Kwarteng's tax-cutting Budget failed for several reasons, and was not an excuse not to cut taxes now from their post-war high.
  • The Daily Mail and Daily Telegraph: Conservative-supporting newspapers are clamouring for immediate tax cuts.
  • Office for Budget Responsibility (OBR): The OBR now thinks the economy will be 0.5% smaller in 2027-28 than stated in the Autumn Statement forecast.