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Chancellor Rishi Sunak urged Tory MPs to support his efforts to retain it public spending under control in this month’s budget, with some conservatives and economists believing that fiscal discipline could now allow for tax cuts before the election.
Sunak is under increasing pressure from Labor and some Tory MPs to increase support for households to prevent cost of living crisis this fall, while ministers are demanding more money to help public services recover from the coronavirus crisis.
But Sunak told colleagues that further increases in spending – above what had already been planned – would lead to more tax increases.
Last month, Sunak had a £ 12 billion annual increase in national insurance contributions to increase funding for the NHS and social care.
Some Tory MPs believe that if Sunak can withstand the shortfall in his October 27 budget – which will also determine Whitehall’s departmental budgets – he could cut taxes before an election by 2024.
“Rishi said he would be difficult to spend in the short term, and that would mean we could promise the next election to promise tax cuts,” a Conservative MP said.
Another Tory said Sunak told MPs to ‘stick’ with spending. Some Conservatives have recently called on the Chancellor to retain a temporary Universal credit increase of £ 20 per week, costs £ 6 billion a year, but Sunak resists.
Some Tories believe Sunak should start reducing taxes before the next election to prove that the party has other priorities than the leader of Labor, Sir Keir Starmer.
It has become increasingly important after Sunak broke one of the Conservatives’ 2019 last month election manifesto promises when he increased national insurance rates.
One senior Tory said: ‘Everyone is painfully aware that if we are going to do an election with a message about taxes that is not like the other lot, you can not just do it in the manifesto.
‘There will have to be a demonstrable road that has already been tackled. Rishi understands that you can not just say we are conservatives with low taxes. ”
Sunak’s staff denies the chancellor is discussing tax cuts. “MPs know that we have made very difficult decisions in the last few months – he is not talking to anyone at the moment about tax cuts,” said one.
Economists have said that although public finances currently look tight, there are signs that the outlook may look better if the UK fiscal watchdog believes the persistent damage due to the Covid-19 crisis was not as deep as currently predicted .
Tim Pitt, a partner at Flint Global and a former adviser to Chancellor Philip Hammond, said: ‘It’s a perfectly plausible scenario that the Office of Budget Responsibility’s scarcity predictions were too pessimistic, leaving money for the chancellor did while we were coming out of Covid. ”
Paul Johnson, director of the Institute for Fiscal Studies, a think tank, said that with a “careful spending review” future favorable forecast changes “will give the chancellor room to reduce taxes”.
Both Pitt and Johnson warned that there would be severe pressure on spending as Britain recovered from the Covid-19 pandemic. The aging of the country’s population will also increase the pressure on higher expenditure and taxes in the medium term.
Under Sunak, the total tax burden is at 35.5 percent of gross domestic product, the highest level since 1950.
Sunak is expected to use its budget to draft new fiscal rules to limit spending.
He wants to balance the budget for daily expenses by the end of parliament and ensure that the underlying debt decreases by 2024-25, according to people informed about his thinking.