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Jeremy Hunt accompanied Prime Minister Rishi Sunak to the north-east of England on Friday to showcase a £2bn electric vehicle investment by Nissan, relieved his Autumn Statement had survived the week without too much criticism from his own party’s MPs.
Set piece fiscal statements often unravel under closer scrutiny but the chancellor’s latest package — with £20bn of tax cuts — was surprisingly well received.
Downing Street had feared a backlash within the ruling Conservative party once it became clear that despite the headline tax cuts the overall tax burden would continue to rise to a postwar high.
Instead, Tory MPs were broadly supportive as was the coverage in the Tory-supporting press. “The word I hear from colleagues most is ‘sensible’,” said one close ally of Sunak. “Most people didn’t want a ‘blow the doors off’ statement.”
But as Sunak hailed Nissan’s commitment to its Sunderland plant as “a massive vote of confidence” in the UK’s car industry, some Tory MPs were urging Hunt to do more to electrify voters ahead of next year’s general election with bolder giveaways in the Spring Budget.
Pollster YouGov suggested the Autumn Statement gave the Conservatives a four-point boost among voters but that still left the party trailing Labour by 19 points and Tory strategists fear that they are running out of time to make the political weather as the election draws closer.
One Tory figure warned that after several high-profile policy failures, the government needed to do more to show voters the ruling party was helping them during the cost of living crisis.
“We said we’d build 40 new hospitals — we haven’t. We said we’d build the northern leg of HS2 — we’ve cancelled it. We said we’d level up. Long-term measures are now pointless — people will say we’re lying. It’s got to be straight tax cuts,” they said.
Many pundits interpreted Wednesday’s giveaway package — which stores up future cuts in public services — as a signal that Sunak would call the election in May rather than the autumn as expected.
Senior advisers insisted that Sunak has not yet made up his mind about election timing. Going to the country early while so far behind in the polls would be an unusual choice.
Hunt told colleagues he was aggrieved at some suggestions that his Autumn Statement was a pre-election giveaway, claiming he did what was best for the economy.
“If it was a pre-election stunt, we wouldn’t have spent £11bn on full expensing,” said one ally of Hunt, referring to the decision to make the flagship capital allowance scheme for businesses permanent.
“There were zero votes in it. And we could have banked that money to spend on tax cuts in the spring.” Hunt’s supporters said he wanted to be remembered as a chancellor who did the right thing, even if the Tories lost the next election.
Senior officials argued that taking 2p off the headline rate of national insurance contributions showed that Hunt had turned down more popular measures such as income tax cuts.
However, his supporters said that did not mean the chancellor was excluding income tax reductions in the Budget. “Let’s not get ahead of ourselves,” said one.
Sunak has publicly backed income tax cuts, declaring in his first bid for the Tory leadership last year that he wanted to see the headline rate reduced from 20p to 16p by the end of the next parliament.
Starting along that path is still an option for Hunt at the Budget, according to government insiders. A 1p cut in the basic rate would cost about £7bn and would be a highly visible sign of Tory tax-cutting intent.
An inheritance tax cut is also seen by some Tory strategists as a vote-winner after Hunt refused to bow to pressure to deliver one in his Autumn Statement.
“It was made clear in no uncertain terms that we shouldn’t do it now,” said one Downing Street insider, referring to lobbying by some Tory MPs who warned that it would appear to be a bizarre priority in the middle of a cost of living crisis.
Sir Nicholas Macpherson, a former Treasury permanent secretary, said he expected Hunt to return to death duty ahead of the Budget. “When the Tories are about to lose an election they promise to abolish or cut inheritance tax,” he said.
Veteran Tory rightwinger Sir Jacob Rees-Mogg, a former business secretary, urged the government to prioritise scrapping death duty and raise income tax thresholds too if possible.
Inheritance tax was “very unpopular” so it would be “electorally very powerful” to scrap it, he said. Rees-Mogg said unfreezing tax thresholds had “less heft” in electoral terms but would benefit living standards.
Sir Robert Buckland, a former justice secretary — from the centrist wing of the party — urged the chancellor to focus help on middle earners who have been dragged into a higher tax band due to the frozen thresholds, often leading to the loss of child benefit.
However, he cautioned Hunt to remain prudent with his economic strategy: “People may not follow [foreign direct investment] and gilt yields, but they will have a sense — is Britain going in the right direction, is the country growing?”