Raising taxes now means they can be reduced ahead of the next election, Rishi Sunak tells Tory MPs

Lucy Fisher
·3-min read
Britain's Chancellor of the Exchequer Rishi Sunak - REUTERS
Britain's Chancellor of the Exchequer Rishi Sunak - REUTERS
Coronavirus Article Bar with counter ..
Coronavirus Article Bar with counter ..

Rishi Sunak has told Tory MPs that implementing tax rises soon will hand the Government greater leverage to slash them ahead of the next election in 2024.

The Chancellor made his pre-budget appearance at the powerful 1922 committee of backbench Conservatives on Wednesday evening to take soundings before the fiscal event on March 3.

He told MPs that honesty and fairness were his guiding principles, as he signalled that difficult decisions lie ahead on raising revenue and reducing the deficit, according to several sources present on the call.

Laying the groundwork for potential tax rises in the coming budget and the next one, Mr Sunak argued that the public would respect candour about what is to come.

Such moves will also burnish the Conservatives’ reputation for responsible management of the public finances, and are essential to differentiate the party from the opposition, he added.

One MP summarised Mr Sunak’s argument: “He basically said we can’t be Labour lite.”

The budget can be the Government’s “signature moment” in the fight against coronavirus, the Chancellor is understood to have declared.

After a series of piecemeal bailout packages responding to the pandemic over the past year, he signalled he wants to set out a broader, philosophical approach to the economy.

MPs said they now expect him to set out a detailed roadmap on his strategy for spending, tax rises, the deficit and other economic levers at the budget.

He urged his backbench colleagues to judge him over the “arc of the parliament”, not just on the coming budget alone.

One MP said: “People asked, ‘Why can't you cut taxes now?’ His point was that we have to look at this over three to four years.

“He [Mr Sunak] said he wants to be tax cutting towards the end of the parliament, that there will probably be some rises in the middle, and that we’re going to be frank with people about the tough choices ahead.

“Obviously everyone in the meeting understood what that meant. Some agree, some didn't.”

Sources said John Redwood and Bernard Jenkin, MPs on the right of the party who are well known champions of the Laffer curve narrative that lower taxes can boost receipts to the Exchequer, spoke up.

They argued that now is not the time to put taxes up on entrepreneurs and small business owners.

In response the Chancellor countered that many tax cutting measures do not increase revenue. He highlighted that the stamp duty holiday introduced last year to galvanise the paralysed housing market had not paid for itself.

It is thought tax rises could be announced in March, but implemented later, in order to give businesses and families due notice.

The Government is examining proposals to stage a second budget at the end of this year, once the economy is starting to recover from the crisis.

A Treasury source told The Telegraph: “If you're going to be drawing blue water between the Conservatives and Labour, you need to be doing that earlier rather than later.

“The crux of the Chancellor’s message was, ‘Trust me, I’m going to be a Conservative in terms of the Covid recovery’. We have a black hole close to £400 billion at the moment. That’s not sustainable and no one should feel comfortable about that being sustainable.”

Mr Sunak was also challenged at the meeting over the lack of provision for financial services in the Brexit trade deal agreed by Boris Johnson last month. The Chancellor was asked about progress on the EU issuing “equivalence” decisions that will make it easier for UK financial services institutions to operate in the EU market.

A source on the call said: “He was quite non-committal about that. He said we can’t determine what the EU will do, we can only manage our own economy. A lot of people were looking for more than that.”