Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Laura Trott, Treasury minister, has confirmed that her boss Jeremy Hunt will cut personal taxes in his Autumn Statement on Wednesday, claiming the outlook for the economy had “completely changed”.
In spite of flatlining economic growth, a rising tax burden and creaking public services, Trott argued that a halving of inflation this year to 4.6 per cent was an economic turning point.
“The economy is in a very different place to where we were a year ago,” she said on Tuesday. “We can now focus on going for growth, pushing up the growth rate of the economy and cutting taxes for individuals.”
Trott, Treasury chief secretary, was dispatched to broadcast studios to put an optimistic gloss on the Autumn Statement, which is being seen by Tory MPs as a crucial political moment.
“We are moving to a different stage,” Trott told the BBC Today programme. “This is a big moment for us, for people at home,” she said, arguing that wages were now rising higher than inflation.
However, inflation, which stood at 4.6 per cent in October, is still more than double the Bank of England’s 2 per cent target, while the BoE has forecast that the economy will flatline next year and barely grow in 2025.
Rishi Sunak, prime minister, on Monday paved the way for personal tax cuts in a speech in London, when he claimed that inflation was under “control”.
“That’s why we can now move on to the next phase of our economic plan and turn our attention to cutting taxes,” he said, while adding that such cuts would have to be carried out in a “sustainable way”.
Business tax cuts, centred on a possible decision to make permanent the £10bn-a-year “full expensing” capital allowance scheme, are expected to be the chancellor’s principal focus.
However, Sunak last year said he wanted to cut the 20p basic rate of income tax. A 1p cut in the rate would cost about £6bn-£7bn. The Treasury declined to comment on its Autumn Statement tax plans.
Hunt is expected by economists to have a cushion of about £25bn against his main fiscal rule, to cut debt as a share of national income in the fifth year of the forecast, compared with £6.5bn in the spring.
But any tax cut, including a possible reduction in national insurance rates, will be seen in the context of a big rise in levies that have already been introduced in this parliament and are set to continue.
Torsten Bell, director of the Resolution Foundation think-tank, said a 1p cut to the basic rate of income tax would benefit 36mn people who would gain an average of about £200 a year.
He noted that because income tax and national insurance thresholds are currently frozen, rather than increasing by 6.7 per cent in line with September’s inflation figure, taxes for many people would still rise.
He said the “fiscal drag” effect would raise £8bn next year, and cost all basic rate employees £270 and pensioners £170.
Referring to a possible 1p income tax cut, Bell said: “You’d only be a winner in April if you happen to earn between £40,000 and £51,000 from these offsetting tax changes.
“Someone on the median salary [£27,000] would be around £120 worse off, and the biggest loss — in both cash and proportional terms — would be for someone earning around £13,500,” he added.
Trott said Hunt would protect people on lower incomes, hinting he would raise working-age benefits by 6.7 per cent, adopting the norm of using September’s inflation data rather than the 4.6 per cent October figure.
“This is something that will be announced tomorrow,” Trott said. But she claimed the government had a record of helping people through hard times, pointing to a big inflation-linked benefits rise last year.
“Times have been very difficult, it was a very difficult time for government finances, but we made sure we prioritised benefits and pushed those up by 10.1 per cent,” she said. “We have protected people when times have been hardest.”
Other planned welfare cuts, including requiring people on long-term sick to work from home where possible, will allow Hunt to claim he is cutting public spending and clearing some space for tax cuts.
