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Jeremy Hunt, the UK chancellor, promised on Sunday to show that Britain is “on a path to a lower tax economy” in next week’s Autumn Statement, as he claimed the country had “turned a very big corner” in taming inflation.
Hunt said the focus of his statement on Wednesday would be on promoting growth, adding that lower taxes were a key part of creating the conditions for a stronger economy.
But he warned he would not announce any tax cuts that complicated the Bank of England’s task of bringing inflation down to 2 per cent from the October rate of 4.6 per cent.
“I won’t do any kind of tax cut that fuels inflation,” he told Sky’s Trevor Phillips. But he added: “We need to show there’s a path to a lower tax economy.”
Hunt said that Britain had “turned a very big corner” in seeing inflation halve during the course of the year. He declined to comment on what kind of tax cuts there might be in the Autumn Statement.
A cut to income tax or national insurance would benefit more people than a cut to inheritance tax, which is another option on the table, but would be more likely to add to inflationary pressure.
Although Hunt is likely to have more fiscal headroom than previously expected to make tax cuts, he has suggested that they would have to be at least partly funded by “difficult decisions” on welfare spending.
Speaking to broadcasters on Saturday, Hunt said: “One thing I want to be very clear about: there’s no easy way to reduce the tax burden. What we need to do is take difficult decisions to reform the welfare state and to make public services more productive and more efficient.”
The government is expected to outline a clampdown on sickness benefits alongside the Autumn Statement, when Hunt will set out changes to the work capability assessment — a test used to identify people who qualify for more generous benefits and are not expected to job hunt.
Ministers have already said they want to reduce benefit spending by requiring people on incapacity support to look for work they can do from home, as part of a move to plug gaps in the labour market.
“Anyone choosing to coast on the hard work of taxpayers will lose their benefits,” Hunt said last week.
Hunt has also been considering “under-uprating” working age benefits by using a lower measure of inflation to calculate next April’s increases, according to government officials briefed on his thinking.
Usually, ministers use the September inflation figure as their reference point, which this year stood at 6.7 per cent. By using the October figure of 4.6 per cent, they could save about £2bn.
But the idea of squeezing spending on some of the poorest in society to help fund tax cuts, including possibly reducing the inheritance tax paid on about 4 per cent of estates, is causing unease within the Conservative party.
Some Tory MPs oppose such a move and Paul Johnson, director of the Institute for Fiscal Studies, has said it would be a “big choice” that would inflict pain on “some of the poorest” in society.
The idea of cutting benefits to facilitate tax cuts, especially reductions in the 40 per cent rate of inheritance tax, could be a tough sell for Hunt and Rishi Sunak, the prime minister.
Lord Nick Macpherson, former permanent secretary at the Treasury, said on the social media site X: “Even this hard bitten former HMT official would feel a little queasy if [the chancellor] combines a cut which unambiguously helps the wealthy while cutting (in real terms) the benefits of the poor.”
Macpherson noted that death duties were already far more restricted than they used to be. The levy currently raises about £7bn a year.
Ken Clarke, former Tory chancellor, said: “Choosing inheritance tax at the present time might appeal to the Conservative right, but it leaves them open to the most appalling criticisms.”
He told Times Radio that many poor people were “very vulnerable indeed”, so giving tax relief to families with members lucky enough to have assets above the inheritance tax threshold could be hard to defend.
Inheritance tax is set at 40 per cent on the value of an estate above a threshold of £325,000. Any unused threshold may be transferred to a surviving partner, increasing the combined threshold to £650,000.
There is an additional transferable £175,000 “residence nil-rate band” when a home is left to children or direct descendants.
Treasury figures with knowledge of the chancellor’s thinking confirmed that he was considering cutting inheritance tax, although any move could be delayed until the spring Budget.
