Any tax cuts will need to be ‘undone’ after election, economist claims

Any tax cuts made during this budget will “one way or another be undone after the election”, according to one economist.

Speaking to Sky News, Paul Johnson, the director of the Institute for Fiscal Studies, explained that – if it were not an election year – it is unlikely that Chancellor Jeremy Hunt would be looking to trim the tax burden.

Speaking to Sunday Morning with Trevor Phillips, Mr Hunt said his budget would be “prudent and responsible” – but added that he wanted to “make some progress” on the “journey” started by the two pence cut to National Insurance announced in the autumn statement six months ago.

The chancellor is facing pressure to cut taxes to try and shift the polls in favour of his own party, which is languishing well behind Labour.

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Mr Johnson said: “I think this is going to be a political decision in an election year. If this weren’t an election year, I don’t think we’d be talking about tax cuts at all.”

He added: “If we weren’t looking at an election, I think he would be saying, let’s steady as she goes, let’s see where we are in a year or two.

“But given it is an election, I suspect we will get some tax cuts.

“My guess, though, is that those will, one way or another, be undone after the election.

“The state of public finances, the state of public services, the shortage of money for everything from the health service to local government to social care indicates to me, we’re going to need more money over the next five years rather than less.”

Changes to income tax and National Insurance have been mooted as potential options, as well the government taking Labour’s policy of scrapping the non-dom tax status.

But with the budget itself not due until Wednesday lunchtime, Sky News understands decisions are still being made in Downing Street about what to include.

The tricky financial picture means there has been limited space to make pre-budget announcements.

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The tax burden is reaching record levels, with it expected to rise to its highest point since the Second World War before the end of this decade as the country looks to pay back heavy borrowing used for support during COVID-19 and the energy spike in the aftermath of Russia’s invasion of Ukraine.

Mr Hunt has already announced plans for an £800m package of technology reforms which government hopes will free up public sector workers.

Mr Hunt claims that “we shouldn’t fall into the trap of thinking more spending buys us better public services” – and that the £800m investment will yield £1.8bn in benefits by 2029.

Torsten Bell, the head of the Resolution Foundation, worked in the Treasury as a civil servant before going to work for chancellor Alistair Darling in the financial crisis.

He explained to Sky News why Mr Hunt is having difficulty “rolling the pitch” – preparing the ground for the announcements in the budget.

Mr Bell said: “The reason why the chancellor is finding things quite difficult is two reasons; One is the difficult economic circumstance.

“We’re obviously coming out of a high inflation period, but we’re not seeing a lot of economic growth.

“And then on top of that, we’re in a world where they’re talking about tax cuts, but everybody around the country, everybody watching this knows that, the reality is this is an era of taxes going up.

“So it’s a difficult situation.”

Mr Hunt said he wants to cut taxes as it helps faster growth as seen in North America and Asia.

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“But it would be deeply unconservative to cut taxes in a way that increased borrowing that wasn’t fully funded,” the chancellor said.

“If I think of the great tax-cutting budgets of the past – Nigel Lawson’s budget in 1988.

“The reason that was so significant is because those tax cuts were permanent and people need to know that these are tax cuts you can really afford.

“So it will be responsible and everything I do will be affordable.”