Voters don’t tend to say thank you. They rewarded Winston Churchill for defeating Nazism by exchanging him for a socialist government whose disastrous legacy we are still shackled with. John Major’s prize for four years of economic recovery was to be replaced by a Labour government promising the same, but only smarmier. Democracy isn’t known for its fairness – nor should it be.
Although it would make CCHQ’s life easier to dissolve the people and elect another, voter volatility is one way by which we hope to keep our rulers responsive. But the electorate’s capriciousness can be a source of frustration for ministers who believe they have been doing a chuffing good job and deserve some credit and recognition. Step forwards Rishi Sunak and Jeremy Hunt.
Both 10 and 11 Downing Street seem to be concerned that the Autumn Statement’s two per cent cut to National Insurance hasn’t caught the eye of voters. Indeed, rather than show the Government some gratitude, the public only seems to have further soured on the Conservatives. Leaving aside THAT MRP poll, one YouGov survey last week had the Tories on only 20 per cent – 27 points behind Labour.
Studies suggest that increases in disposable income take around a year to fully feed through to voting intentions. Sunak and Hunt might therefore be able to hope for an uptick come the autumn, especially if inflation resumes falling, the Middle East calms, a recession is swerved, and interest rates come down.
Or they could jump the gun, and double down on tax cuts. Once more, with feeling! Downing Street’s thinking is that the Autumn Statement’s tax cuts were too blatantly a pre-election bung. In Match’s Spring Budget, Hunt aims to frame reductions as part of a much broader argument about long-term choices, Labour’s threat, and the importance of growth.
The pitch rolling begins. Hunt told Davos that lower taxes were “the direction of travel we would like to go in”. The pair then took to the Sunday papers. Sunak told readers of The Sun on Sunday that their choice was “tax cuts with me or tax rises with Starmer”. Hunt compared himself to Nigel Lawson in The Mail and said he was cutting taxes in a way that “is both affordable and boosts our growth”.
He followed this up in his op-ed for us yesterday, where he suggested the next election was between “Conservatives proposing a path to lower taxes, and Labour pretending they wouldn’t raise them”. Yes, Covid, energy bailouts, and Ukraine increased borrowing and required the hard choice of raising taxes. But now that the hard work has been done, reductions are feasible.
He also followed his claims at Davos that “dynamic economies tend to be places with lower taxes” and that “supporting businesses with competitive taxes…is the way to grow” by saying he had had Treasury officials produce analysis purporting that, across the G20 and for the last 25 years, lower-taxed economies have seen higher economic growth.
Trussites reading this might be forgiven for thinking that Winston has learnt to love Big Brother. Wasn’t the whole point of the ex-Prime Minister’s mini-Budget and Growth Plan to cut taxes and aim for growth of 2.5 per cent a year? The Chancellor would argue that the circumstances are now different. Geopolitics permitting, the economic situation is not as volatile as it was in September 2022.
Still, the argument that tax cuts themselves lead to growth is one that the Conservative Party hasn’t been used to making since the days of David Cameron Mark One. Both Theresa May and Boris Johnson made their priorities repudiating austerity and raising spending. Sunak faltered against Liz Truss because he urged spending restraint before immediate cuts. Ronald Reagan beat Nigel Lawson.
The overall evidence that tax cuts boost economic growth is mixed, depending on which taxes are cut. Cutting Corporation Tax is a non-no, since doing so would make a mockery of Sunak’s previous insistence on raising it. ConservativeHome has previously suggested a cut to – or abolition of – Stamp Duty, a measure which boosted economic activity during Covid. But neither of these are apparently Hunt’s priorities.
Having made full-expensing permanent in the Autumn Statement, the Chancellor’s focus is squarely on personal taxation. Reports suggest that Hunt will have between £6 and £10 billion of extra fiscal headroom to play with and that he is again thinking of following our advice to prioritise Income Tax cuts over Inheritance Tax.
Our argument is simple: if you must do a pre-election tax cut, reduce a levy that affects the greatest number of voters. Not only is Inheritance Tax only paid on 3.7 per cent of deaths but cutting it could easily be painted by Labour as two very wealthy men helping out their own children. For all the claims cutting it would be aspirational, polling suggests it is not a voter priority.
But the problem with cutting Income Tax is that it is expensive. A 1p cut in the basic rate would cost around £7 billion. Hence why Hunt is also said to be considering raising the £50,000 threshold at which child benefit is withdrawn. Doing so would reverse George Osborne’s 2013 decision to introduce a taper rather than scrap child benefit entirely for higher earners.
If the threshold had risen with inflation, parents would begin facing the charge at £65,000 rather than £50,000. Freezing the band has seen around 600,000 families see their marginal tax rate increase to around 55 per cent, proving a headache for many. Raising the threshold might prove a simpler pledge than Hunt’s ‘free’ childcare one, currently mired in bureaucratic holdups.
That doing would reverse a previous Chancellor’s policy will be of little concern to Hunt. The same would be true of any Income Tax cut. One obvious reason why tax cuts have yet to impact voters is the one highlighted by Labour on this site. The decision by Sunak to freeze tax thresholds – extended by Hunt – has seen millions more dragged into paying higher rates.
When the tax burden is still on track to reach its highest for 70 years, Labour is right to suggest that any cuts are lipstick on a pig. Sunak and Hunt may argue they have a longer-term plan towards a smaller state and tax burden or suggest Labour’s plans will inevitably mean further hikes. But voters cannot be fooled into thinking their taxes are lowering when they are not.
That isn’t the only reason why tax cuts haven’t cut through. As much as it might pain the right-wing entertainment industry, the evidence suggests that the public care more about more money for public services than they do for further tax cuts. Lord Ashcroft has found that by a margin of 53 per cent to 25 per cent – and 44 per cent to 28 per cent amongst 2019 Tories – voters backed higher spending. Consciously or not, some Tory MPs agree – hence the call by more than 40 of them yesterday for Michael Gove to plough more funding into local councils.
Public services – from hospitals, to schools, to prisons – seem to be in a doom loop of under-investment, disruption, and ineffectiveness. Sunak and Hunt can point to the money they have already spent. But YouGov suggests that voters both want more money spent and the tax burden to remain about the same. This is Labour’s pitch, even if it proves to be unworkable in office.
Repeatedly chucking more tax cuts to an electorate demanding more spending is unlikely to produce a different result, however many times Sunak and Hunt try. Tell me again – what’s the definition of insanity?