Jeremy Hunt said it is unlikely he will have “the kind of room that I had for those very big tax cuts” in the autumn statement.
The Chancellor confirmed that he warned the Cabinet there is less scope for tax reductions in his March 6 Budget despite clamour within the Tory ranks for cuts to try to woo voters.
The PA news agency understands the senior Conservative pointed to “major structural weaknesses” in the UK economy as being a factor, highlighting how the US, France and Germany are all more productive.
Mr Hunt told ITV’s Peston on Wednesday evening: “We go through a process ahead of every budget and autumn statement where you don’t actually know the final numbers until a couple of weeks before. And we’re still in the middle of that process.
“As things stand at the moment – things can change – it doesn’t look like I’ll have the kind of room that I had for those very big tax cuts in the autumn.
“And I did mention that to the Cabinet, yes.”
The comments come after the International Monetary Fund (IMF) on Tuesday warned further tax cuts could risk the Government’s ability to invest money in the NHS and other vital services.
Mr Hunt cut national insurance in November’s autumn statement, a move the Office for Budget Responsibility thinks will cost the Treasury around £9.76 billion in the 2028 tax year.
In a reduction that came into force on January 6 and is being felt in pay packets this month, the main rate of national insurance was sliced by two percentage points, from 12% to 10%.
The Treasury says the change means a worker on a £35,000 salary will be £450 better off a year, although critics say the benefits are offset by the continuing freeze in personal tax thresholds, pulling millions into paying more to the Exchequer.
Ahead of a likely election later this year, Mr Hunt appears keen to cut taxes even further if he can, in a bid to boost the Conservative Party’s chances of pulling off a shock victory.
Prime Minister Rishi Sunak’s party has been consistently behind Sir Keir Starmer’s Labour in opinion polls for more than a year, trailing by as much as 20 points in some surveys.
Speaking earlier this month during a visit to the World Economic Forum in Davos, Switzerland, the Chancellor said “the direction of travel” is for the UK to emulate successful low-tax economies.
Economists have said the fact the Government borrowed less than expected in December might give the Treasury chief the cover he needs to slash taxes further in the spring Budget.
IMF Growth Forecast: 2024🇺🇸USA: 2.1%🇩🇪Germany: 0.5%🇫🇷France: 1.0%🇮🇹Italy: 0.7%🇪🇸Spain: 1.5%🇯🇵Japan: 0.9%🇨🇦Canada: 1.4%🇨🇳China: 4.6%🇮🇳India: 6.5%🇷🇺Russia: 2.6%🇧🇷Brazil: 1.7%🇲🇽Mexico: 2.7%🇸🇦KSA: 2.7%🇳🇬Nigeria: 3.0%🇿🇦 South Africa: 1.0%https://t.co/wiP1MGMXIT pic.twitter.com/DNmGVlfra6
— IMF (@IMFNews) January 30, 2024
Yet December’s figures from the Office for National Statistics said debt levels are higher than they have been since the 1960s when compared with the size of the economy.
Responding to the IMF’s briefing on Tuesday, Mr Hunt said it was “too early to know whether further reductions in tax will be affordable in the Budget”.
He said it continued to be Government thinking that “smart tax reductions can make a big difference in boosting growth”.
Health minister Dame Andrea Leadsom, asked on LBC whether she wants to see further tax cuts, said it is the Chancellor’s ambition to “enable people to keep more of their hard-earned cash”.
The IMF has downgraded the UK’s growth forecast for next year. The body’s economists expect UK growth to hit 0.6% this year, and 1.6% next.
It would make the economy the second-worst performer in the G7 this year and the joint third-worst performer in 2025.
The IMF’s forecast for this year is unchanged since its last report in October, but has been downgraded by 0.4 percentage points for next year.
But the IMF said that change is largely due to a revision to official data, rather than a worsening economic situation.
Conservative former cabinet minister Sir David Davis told LBC’s Andrew Marr that the IMF should “go get lost” over its tax warning.
“We should stop listening to financial forecasts that are based on the prejudices of the people who write them,” he said.
The ex-Brexit secretary also predicted “there’ll be tax cuts, the question is the size”.