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Rishi Sunak wants 2p tax cut before next general election

Rishi Sunak - Victoria Jones
Rishi Sunak - Victoria Jones

Rishi Sunak wants to cut National Insurance or income tax by up to 2p before next year’s general election and head into the campaign “promising to do more”, The Telegraph understands.

Officials have been investigating the impact and likely duration of current levels of inflation, after recent figures proved worse than Mr Sunak and Jeremy Hunt, the Chancellor, had expected even several weeks ago.

Senior figures have tentatively concluded that despite the “stickiness” of inflation, the economy is likely to recover sufficiently for Mr Hunt to introduce a cut in April, even if he has to wait until the Budget in March to announce the move.

A senior government source said that the Prime Minister wants to cut income tax, or National Insurance when inflation has receded, on the basis that both would “incentivise work”.

During his leadership campaign, Mr Sunak focused only on cutting income tax, in pledges that were scrapped in the wake of Liz Truss’s premiership.

Holding a tax cut announcement back until March could result in the change being implemented weeks from an election.

A government source said: “No one should be in any doubt that we will go into the election having cut taxes and promising to do more.”

A senior government source added of Mr Sunak: “Cutting tax on working people is something he strongly believes in. He wants to incentivise work, as you can see from what DWP [the Department for Work and Pensions] and the Treasury have been doing on getting people back to work.”

The approach is based on a belief that “work is good for people and it’s good for the wider economy as well”.

Having implemented a cut in April next year, Mr Sunak hopes to go into the election with a revived version of his leadership pledge to cut income tax by 1p in each year of the next Parliament.

Meanwhile, the Conservatives are likely to make hay with an internal Treasury analysis which suggests that Labour’s planned £28 billion-a-year investment in climate measures could push up mortgage payments by hundreds of pounds a year.

Labour has said the plan would be funded by borrowing. Treasury analysis found that borrowing just £20 billion would lead to a 0.5 percentage point increase in interest rates. This would equate to £912 extra per year for a household with a £250,000 mortgage.

Labour insisted its plans were “subject to our fiscal rules being met, which includes getting debt falling as a percentage of GDP”.

Another idea being discussed in No 10 is to raise the thresholds at which workers begin paying both income tax and National Insurance after Mr Sunak “equalised” the levels for both levies at £12,570. However, the move is seen as “eye-wateringly expensive”.

Mr Sunak and Mr Hunt have both said  they want lower taxes but have clashed with Tory MPs over their refusal to commit to cuts before the next election.

The Prime Minister and Chancellor fear that cutting personal taxes with inflation at its current level of 8.7 per cent would prompt the Bank of England to hike interest rates further.

Senior figures believe that a clear “retail” offer of personal tax cuts should be a priority for the Conservatives to create a real divide with Labour.

As Chancellor, Mr Sunak announced a 1p income tax cut in March 2022 for 2024, but Mr Hunt scrapped the move last autumn. Mr Sunak is hoping to revive it and go further with a 2p cut to the basic rate of income tax or an equivalent reduction in National Insurance.

A Treasury spokesman said: “We don’t comment on tax policy outside fiscal events.”

A Labour spokesman said its Green Prosperity Plan “will invest in the long-term productive capacity of our economy, boosting growth and strengthening the public finances. Delaying investment in the low-carbon transition will simply mean higher costs in future.”