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Rishi Sunak said on Friday that voters were starting to see “the green shoots of recovery”, ahead of a Budget next month that he hopes will help to improve the Conservative party’s dire poll ratings.
The UK prime minister told the Welsh Tory conference there was a “palpable sense out there” that the economy had turned a corner, as he tried to reassure activists the party was not doomed to election defeat.
“They do see those green shoots — they can see that things are getting better,” he said. “Businesses like yours feeling better about the future and that is why it is so important that we stick to our plan.”
Norman Lamont, the former Tory chancellor, also claimed to have detected “green shoots of economic spring” in 1991, ahead of an unexpected election win for John Major’s Conservatives the following year.
But Sunak is running out of time to convince voters that his plan is working. Earlier this month, official data revealed Britain had slipped into a mild technical recession in the second half of last year.
Meanwhile, a 2p cut in national insurance rates, which fed through into workers’ pay packets in January, has done nothing to lift the Tories’ popularity. Polls show Sunak’s party continues to trail Labour by about 20 points.
Sunak and chancellor Jeremy Hunt believe voters are starting to see evidence of a recovery, with real wages rising and unemployment rates below 4 per cent.
Hunt is putting the finishing touches to the main measures he intends to put into his Budget on March 6, which he hopes to show voters a clear path to a brighter future.
But the chancellor has limited room for manoeuvre, according to government insiders, who have in recent weeks been trying to damp down expectations of big tax cuts.
They insisted Hunt’s planned Budget tax cuts would be “nothing like” the £20bn of national insurance and business tax cuts announced in November, although the final package has yet to be finalised.
To try to get around this problem, Hunt’s allies said he is expected to say his Budget represents “Part 2” of a package of tax cuts, linking it back to his 2p cut in national insurance rates at the Autumn Statement.
Hunt is looking to make further tax cuts on March 6, either to income tax or national insurance, but his team said economic conditions prohibit big reductions. “That’s the world we’re in right now,” said one aide.
Forecasts by the Office for Budget Responsibility are said by government insiders to have given Hunt roughly the same amount of fiscal headroom — £13bn — as he had left over after his Autumn Statement.
The fiscal headroom is the margin against Hunt’s own borrowing rule, which says debt must be falling year on year as a share of gross domestic product in five years’ time.
A 1p cut to income tax would cost about £7bn, while a similar reduction in national insurance would cost about £5bn.
Hunt’s team said the chancellor is still considering creating some more fiscal space by reducing spending assumptions for government departments after 2025.
Departments are already facing squeezed budgets in the next parliament. Current assumptions of a 1 per cent real-terms annual rise in overall day-to-day spending have been described by economists as “fiction”, since bigger rises for certain protected departments would mean unrealistically steep cuts to others.
The right-wing Reform party has said it would go further and cut around 5 per cent from departmental budgets in an effort to fund billions of pounds worth of tax cuts.
Leader Richard Tice will unveil a draft election manifesto this weekend featuring around a dozen tax-cutting policies as the party applies more pressure on Sunak, amid fears that voters are abandoning the Conservatives for Labour and Reform.
Reform secured double-digit support in two recent by-elections, while polling indicates that nearly two-thirds of its supporters were Conservative voters in 2019.
Tice will address a rally in Doncaster on Saturday where he will announce plans to raise the higher-rate income tax threshold to £70,000, abolish inheritance tax on estates worth under £2mn and introduce a 20 per cent “tax relief” on private education and healthcare.