OPINION - Tax cuts in this economy? This Tory obsession is a fiscal scorched earth strategy aimed at Labour

Chancellor Jeremy Hunt is set to present his spring Budget on March 15 (PA Wire)
Chancellor Jeremy Hunt is set to present his spring Budget on March 15 (PA Wire)

How can a nation that has enjoyed no productivity growth in 15 years, is still reeling from the economic shocks of Brexit, Covid and Russia’s full-scale invasion of Ukraine and where debt is equivalent to 100 per cent of GDP, afford sweeping tax cuts? The short answer is: it can’t. The longer answer is the same, but involves several hundred words about the internal dynamics of the Conservative Party.

Last November, the Chancellor, Jeremy Hunt, cut taxes. Not by as much as he had raised them, of course. This is still set to be the most tax-raising parliament in history. But by taking 2p off the main rate of National Insurance, he pulled the trigger on the Tories’ general election strategy. And he’s not done yet.

Should there be money to spend in the spring, or “fiscal headroom”, expect a cut to income tax, perhaps repeal of inheritance tax. And a fuel duty freeze, as is now constitutionally mandated.

As far as political strategy goes, tax cuts make some sense. It is one of the few policies that unites the Tories. And it’s not as if Rishi Sunak can go to the country pointing to his success in boosting living standards or stopping the boats. Moreover, tax cuts pose a challenge to Labour.

Partly because Sir Keir Starmer can’t go into an election in the middle of a cost-of-living crisis and oppose a cut to the basic rate of income tax. But also because the more money the Tories allocate to tax cuts today, the less he will have to spend on public services and his flagship £28 billion of green investment, which is becoming something of a millstone around his neck.

This is the logic that underpins the Conservatives’ fiscal scorched earth policy. Yet there are a few problems with this strategy. The first is that, according to a YouGov poll for The Times, 62 per cent of voters — including a majority of Tory supporters — would like to see the Government spend more money on public services, even if that means not cutting taxes. On the one hand, sometimes voters lie. On the other, and I don’t wish to pry, but have you interacted with the British state recently?

Multiple arms of the state need money simply to fulfil the basic functions we have come to expect

You don’t need to have pored over the Institute for Government’s performance tracker to know public services need a cash injection. From near-record NHS waiting lists to crumbling school buildings, multiple arms of the state need money simply to fulfil the basic functions we have come to expect.

Yet the spending plans of both Labour and the Conservatives for after the election are so tight (translation: cuts to day-to-day spending and public investment) as to be completely unrealistic, verging on science fiction. And that is before the state has to start paying for big new things, such as the NHS workforce plan (roughly £50 billion) or the more dangerous world the Government keeps telling us Britain is now facing. The Office for Budget Responsibility has not been asked to cost World War III, but my understanding is we’d take a hit.

As the Institute for Fiscal Studies’ Paul Johnson notes with typical elan, if the next government is “promising tax cuts, let’s hear where the spending cuts will fall”.

The political class’s obsession with “fiscal headroom” — a mysterious figure created by arbitrary fiscal rules we never seem to meet but must pretend we will get to one day — and the idea that it exists only for the Chancellor to spend, is unabated fiscal recklessness. If the last decade-and-a-half has taught us anything, it is to expect the expensive. Hunt is pretending not to have noticed.

I'm ashamed to say I hadn't heard of Raye - her success is well deserved

It is important, in leader conference, to display your ignorance when appropriate. And so when I admitted to the editor and senior bigwigs that I had not heard of Raye, the south London singer-songwriter nominated for a bazillion Brit Awards, I was expecting to be met with understanding. I was wrong. They tell you to bring your whole self to work — they don’t mean it.

Somewhat shamed, I listened to her debut album, My 21st Century Blues, later in the day, and in the words of Marge Simpson, I thought it was toe-tapping fun. I’m not a music journalist (for good reason) so won’t embarrass myself with abstruse descriptions of lyrics, melodies and mood. But it certainly made a refreshing change from listening to all 66 hours of Robert Caro’s The Power Broker on audiobook. Proof, if nothing else, that there are many types of escapism.

Jack Kessler is chief leader writer and author of the West End Final newsletter