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Business Maverick

Sunak says UK inflation battle takes priority over tax cuts

Sunak says UK inflation battle takes priority over tax cuts
Britain's Prime Minister Rishi Sunak during a bilateral meeting with Rwanda's president at Downing Street in London, Britain, 4 May 2023. (Photo: EPA-EFE/NEIL HALL / POOL)

Prime Minister Rishi Sunak said the fight against inflation trumps the need to cut UK taxes, signalling that British voters are unlikely to benefit from a sizable pre-election giveaway.

“The number one priority right now is to reduce inflation and be responsible with government borrowing, that is absolutely the overriding economic priority, and that takes precedence over everything else,” Sunak told reporters on Tuesday when asked if he would rule out tax cuts before the next general election.

Prime Minister Rishi Sunak spoke to reporters as he headed to a NATO summit in Vilnius, Lithuania.

The premier’s comments echo remarks by Chancellor of the Exchequer Jeremy Hunt to the Financial Times in an interview published at the weekend. The newspaper reported Hunt ruled out big pre-election tax cuts this fall, and said he wouldn’t add billions of pounds of demand into the economy.

But the stance risks alienating members of the governing Conservative Party who have protested at the government overseeing the highest tax burden in seven decades. With the Tories trailing Labour by more than 20 points in recent polls, they’re demanding tax cuts to help win over voters ahead of a general election that Sunak must call by January 2025.

Sunak, however, has staked his fortunes on five pledges to voters around the economy, health waiting lists and immigration. Foremost among them is a pledge to halve inflation this year — from 10.5% at the end of 2022. That goal is looking increasingly tricky amid persistent price pressure, with inflation still at 8.7% — more than four times the official 2% target. 

On Tuesday, data showing UK wages rose more than expected added to the sense that inflation is proving hard to tackle, and kept pressure on the Bank of England to continue a run of interest rate rises.

“Given the context we face, we are going to make sure that we bring inflation down and we don’t do anything to make the situation worse or last longer,” Sunak told reporters on the way to the NATO summit in Vilnius, Lithuania.

Sunak also said inflation is a consideration as the government decides how big pay rises should be this year for public sector workers including nurses and police officers.

“We want to be fair, we want to do things that are affordable for the taxpayer and we need to be responsible,” he said. When it comes to funding pay rises, “the chancellor is right to highlight the importance of excess government borrowing on inflation”.

A final decision on pay for those workers is expected in the coming days, but no extra borrowing will be allowed to fund them, three officials familiar with the matter told Bloomberg. One official said the money to pay for those rises will have to come from existing departmental budgets. 

Some Conservatives have urged Sunak and Hunt to commit to tax cuts ahead of three testing by-elections on 20 July. Their argument — that lowering the tax burden is crucial to stimulate growth — is one Sunak finds difficult to dismiss, even as he sticks to his mantra on fighting inflation.

“The chancellor and I are completely united on wanting to reduce taxes for people: of course we are — we’re Conservatives,” Sunak said. “We want people to be able to keep more of their own money.” DM

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