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Conservative MPs Worry Cost Of Headline Tax Cuts Will Be Hikes Elsewhere

Chancellor Jeremy Hunt (Alamy)

4 min read

A number of Conservative MPs have expressed concern that any cuts to personal taxation in Jeremy Hunt's Spring Budget are likely to be raising taxes on business and foreign nationals.

Chancellor Jeremy Hunt is widely expected to include a slew of tax cuts in his Budget statement to the House of Commons on Wednesday, with a cut National Insurance by a further two percentage points considered to be the most likely option, according to The Times. 

A senior minister told PoliticsHome they expected the Treasury to cut personal taxes to revive the Tories’ election hopes after a series of dire opinion polls which put the Conservatives more than 20 points behind Labour. 

However, many Tory MPs were concerned the Chancellor would scrap non-domiciled tax and increase some taxes on business to free up space to cut National Insurance and Income Tax. 

The Chancellor is considering scrapping non-domiciled tax rules, Treasury sources have told the FT, which would raise £3.2billion a year, according to academic research from London School of Economics. The Sunday Telegraph reported the Government was also contemplating hiking business class air fares. 

John Redwood, Conservative MP for Wokingham, told PoliticsHome the government should cut taxes such as National Insurance and Income Tax without raising them in other areas to regain the Conservative's reputation as the party of low taxation. 

“The last thing you do is dream up new taxes, the last thing you do is put taxes up. Hunt says he wants to find his inner Lawson, well get on with it,” he said, referring to Nigel Lawson who significantly cut taxes as chancellor under Margaret Thatcher in the 1980s.

“The idea is to rebuild the Conservative brand as based on lower and fewer taxes. It works. It generates more revenue, creates more growth.”

A Tory MP agreed with this line of thinking and told PoliticsHome if the Budget was primarily about “switching taxes around” the announcements made by the Chancellor would “be less impactful”.

A junior minister told PoliticsHome they were “depressed about the whole thing” and did not see a coherent philosophy around the Chancellor’s thnking. "I don't think there's much of anything to come,” they claimed.

An idea Redwood put forward to balance the Budget, which is popular with the economically liberal wing of the Tory Party, was to reduce the amount of tax people pay in the UK to drive economic growth. 

The premise of the argument is that by reducing taxation, consumers would have more money to spend on goods and services, and businesses would have more money to invest. This in-turn could help to drive up demand in the rest of the economy and lead to higher economic growth. 

Economists have disputed whether this would work in practice. Dr George Dibb, head of IPPR's Centre for Economic Justice, told PoliticsHome he believed “tax cuts today” will make for “worse public services for tomorrow” which was not in the public interest.

“The chancellor is in a bind – last autumn’s cuts to national insurance are already premised on harsh cuts of up to 20 per cent on some important government departments, as yet unspecified, to remain within the government's self-imposed fiscal rules,” he said.

“There are ways to raise tax revenue from reforms that are based on fairness, like closing the non-dom tax loophole, that won’t harm working people at all. 

"The priority with this revenue though should be supporting crumbling public services, not tax giveaways.”

Nonetheless this line of thinking is still popular within the Conservative Party and amongst many of its MPs. A number of tax cutting campaigns have been launched in the run up to Budget day.

Key figures of the Conservative Growth Group (CGG), who were members of Liz Truss’s cabinet during her short reign as prime minister, have launched campaigns to scrap a series of taxes to bolster the economy.

Ranil Jayawardena, the Chair of the CGG, told the Telegraph the Government could improve the flexibility of the labour market by scrapping stamp duty and abolishing IR35.

He claimed such measures would be “crucial for growing the economy and securing a better future for families across the country.”

The UK currently has historically high levels of tax, according to Office for Budget Responsibility (OBR). Tax revenue as a percentage of GDP has increased from 32.64 per cent in 2000 to 35.30 per cent in 2023, according to OECD data.

A senior Tory on the Right of the Party remained sanguine ahead of the Budget and said Hunt had surprised his Conservative colleagues in the past.

The Treasury has been approached, but it does not comment on speculation around the Budget.

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