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Rishi Sunak Must Juggle Tax Cut-Hungry Conservative MPs And The Risk of More Economic Woe

Prime Minister Rishi Sunak in Washington (Alamy)

4 min read

Prime Minister Rishi Sunak faces an increasingly difficult balancing act in trying to satisfy the growing number of Tory back benchers who want tax cuts brought forward, with warnings that doing so risks worsening an already precarious economic picture. 

Since entering 10 Downing Street in October, the PM has sought to put fiscal responsibility at the heart of his agenda. This, he argues, means slashing taxes only once he feels public finances are in a sufficiently better shape, with inflation coming down and growth on the up.

Conservative MPs have largely been supportive of this position, even if it means waiting longer than they would prefer to see tax cuts, having witnessed the sweeping tax-slashing plans of Sunak's predecessor Liz Truss trigger chaos in the markets, and ultimately her downfall.

But the Conservative party's ongoing struggle to signicantly reduce Labour's leads in the opinion polls, plus soaring mortage rates putting added pressure on household finances, are prompting a growing number of Tory MPs to call for tax cuts to begin sooner.

"There has been a pretty dramatic move in that direction," observed one former minister, who told PoliticsHome it wasn't just the usual suspects on the right of the party who fervently supported Truss who were calling for it, but more "mainstream" Conservative MPs, too.

One senior Conservative said the true divide in the party was not between Sunak-backers and allies of Boris Johnson, which has spilled out into the open in recent weeks, but between Tory MPs who back the PM's plan to slash taxes closer to the next general election when public finances are in better shape, and those who want to see them expedited.

Announcing his resignation as a Conservative MP last week, Johnson took a swipe at the Sunak regime's record on tax policy, saying: "We need to cut business and personal taxes – and not just as pre-election gimmicks – rather than endlessly putting them up."

According to David Jones, the Conservative MP for Clywd West, while the circumstances in which Johnson made those remarks – namely, his exit from Westminster politics ahead of being found to have misled parliament – were "another matter", they didn't "really detract from the fact that a lot of colleagues do feel that we're paying too much tax".

“I think he's absolutely right," he said. "Not just the personal tax burden, but even more importantly, the corporate tax burden, which is having an adverse effect upon growth.”

He added: “Frankly, if we want to grow the economy, and we don't want to be stuck in stagflation, then we really do need to see something done about what is a very oppressive rate of tax and of course, the same goes very much for individuals.

"We've got the highest personal tax burden for 70 years."

In March, the Office for Budget Responsibility (OBR) said it expected the UK tax burden to reach its highest level since World War Two, hitting 37.7% of GDP in the year 2027-28. Conservative MPs have also been frustrated by the decision by Sunak and Chancellor Jeremy Hunt to prolong freezes to income tax threshold, dragging more people into higher tax bands.

Sunak's position of asking Tory MPs to be patient continues to enjoy support, however.

Former secretary of state Damian Green, leader of the One Nation group, told PoliticsHome while all Conservative MPs wanted to see tax cuts, it had be done "responsibly" to avoid the mistakes made by the short-lived Truss administration. 

Boris and Rishi"That means showing that you're hitting your targets with borrowing and debt and long-term debt is coming down, and that you've got enough growth in the economy that you can afford it," said the ex-Cabinet minister.

"There isn't a single Conservative that doesn't want to cut taxes, but we've seen what happens if you go too far too far - and we absolutely can't afford to make that mistake again.”

Similarly, Ben Houchen, the Tory mayor for Tees Valley, said at last week's Northern Research Group (NRG) conference that the Conservative MP "would reap the benefits" of the Prime Minister's safety-first approach, and urged Conservative colleagues to be patient.

 “What Sunak and Hunt have really, really reintegrated into the heart of the Conservative Party into this government is fiscal responsibility. We will be rewarded. Later in the year or early next year, we will start to reap the benefits of that very sensible fiscal position.” 

Houchen's reference to "later in the year" points to the Autumn Statement, when Chancellor Hunt will be under extreme back bench pressure to finally lower the tax burden. But with an growing number of Tory MPs are running out of patience, Sunak may be forced into make more concrete promises ahead of statement, or risk an increasingly restless party.

With additional reporting from Adam Payne, Caitlin Doherty and Tom Scotson.

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