Prime Minister insists ‘fairness’ at heart of budget despite tax hikes ‘for all’

Rishi Sunak has insisted that the budget’s difficult decisions will have “fairness and compassion at their heart” after the Chancellor warned everyone will be paying more tax.

The Prime Minister and Jeremy Hunt are considering allowing local authorities to impose larger rises in council tax next year to raise money for social care, among their tax-hiking measures.

Mr Sunak tried not to blame his predecessor Liz Truss for making the UK’s financial outlook even worse but did acknowledge she made “mistakes” ahead of Thursday’s budget.

His comments came after Chancellor Jeremy Hunt said “we’re all going to be paying a bit more tax” as he looks to find up to £60 billion from a combination of hikes and spending cuts.

Economists at the Resolution Foundation calculate that Ms Truss’s disastrous so-called mini-budget exacerbated the problem to the tune of £30 billion.

But Mr Sunak was at pains to insist that global challenges such as the coronavirus pandemic and the Russian invasion of Ukraine are the “primary driver for energy prices and inflation”.

Speaking in Bali, where he is attending the G20 summit, Mr Sunak insisted “stability has returned” to the UK now he has entered Downing Street.

Pressed on whether Ms Truss’s mini-budget made his financial choices more severe, the PM told broadcasters he has already acknowledged Ms Truss made “mistakes”.

“And what we’ve seen now is that stability has returned to the United Kingdom, but that’s because the expectation is that the Government will make those difficult but necessary decisions to ensure that we can get a grip of inflation, reduce it for people with the cost of living, also limit the increase in mortgage rates,” he said.

“But I really want people to be reassured that what the Chancellor is working on is that all the decisions we make will have fairness and compassion at their heart and I’m confident on Thursday, people can see that that’s what we strive for.”

The Resolution Foundation believes that Ms Truss’s remaining unfunded tax cuts, from national insurance and stamp duty cuts, cost nearly £20 billion.

And the economists calculate that higher interest rates sparked by her economic vision have cost the nation £10 billion, with higher costs of borrowing.

On Sunday, Mr Hunt warned the nation that “sacrifices” are required across the board to get the economy back on track.

“We’re all going to be paying a bit more tax, I’m afraid,” he told Sky News.

Some Conservatives have warned that hiking taxes will not help grow the economy, with the UK teetering on the brink of recession after the economy contracted in the last quarter.

Kwasi Kwarteng, who was the chancellor who set out Ms Truss’s budget, argued that growth would not stem from “putting up our taxes”.

Cost of living crisis
Kwasi Kwarteng and Liz Truss (Stefan Rousseau/PA)

Speaking to reporters on the plane to Indonesia, Mr Sunak said the plan is to “lay the foundations” for growth so taxes can be cut “over time”.

Current rules mean local authorities must trigger a referendum to increase council tax by more than 2.99%, plus a 1% levy for social care.

Mr Hunt is understood to be considering hiking that amount in order to ease pressures on social care as inflation stands at more than 10%.

The budget is widely expected to raise finances through stealth taxes, by freezing the rates in which workers begin paying higher rates of tax. Inflation and pay increases will mean more people being dragged into higher bands.

The threshold for when the 45% rate of income tax kicks in for the highest earners could be decreased from £150,000 to £125,000.

Mr Hunt is expected to make the support plan for energy bills less generous from April, instead switching to more targeted measures in order to save the Treasury billions.

He is considering increasing the windfall tax on oil and gas giants from 25% to 35% while also expanding the levy to electricity generators.

The cap on social care costs announced by Boris Johnson is expected to be delayed by at least two years.