Rishi Sunak has promised tax cuts to boost economic growth and “reward hard work” ahead of the autumn statement.
The Prime Minister suggested that alongside a reduction in the tax burden the Government would also seek to squeeze welfare spending by getting people back into work and clamping down on fraudsters.
Mr Sunak, who has stressed the need to be responsible with the public finances, said he was able to move on to the “next phase” of the Government’s economic plan after inflation fell to 4.6% in October.
Although Mr Sunak has met his own pledge of halving inflation in 2023, the rate of the Consumer Prices Index is still well above the Bank of England’s 2% target.
The prospect of tax giveaways comes ahead of a general election expected next year and with the Tories seeking a boost to turn around opinion polls which have shown consistent Labour leads.
The Prime Minister and Chancellor Jeremy Hunt are under pressure from some Tory MPs to slash taxes.
But Mr Sunak said that would only happen “over time”.
Mr Sunak said he was taking “five long-term decisions” for the economy and public finances: “Reducing debt; cutting tax and rewarding hard work; building domestic, sustainable energy; backing British business; and delivering world-class education.”
In a speech at a college in Enfield, north London, the Prime Minister did not give details of which taxes would be cut and suggested those pushing for the historically high tax burden to be reduced would need to be patient.
“We will do this in a serious, responsible way, based on fiscal rules to deliver sound money, and alongside the independent forecasts of the Office for Budget Responsibility.
“And we can’t do everything all at once.
“It will take discipline and we need to prioritise.
“But over time, we can and we will cut taxes.”
He said the Government had decided to “cut tax and reward hard work” – in a hint that income tax or national insurance could be reduced.
But in a sign that easing the burden on businesses would be his first priority he said “our focus is very much the supply side and growing the economy”.
The Prime Minister contrasted his approach to the public finances with that of Labour and his predecessor Liz Truss.
He claimed Sir Keir Starmer and Rachel Reeves wanted to continue the “big government, big spending approach” of the pandemic, with up to £28 billion of borrowing a year for Labour’s green plans.
“This makes the same economic mistake as last year’s mini-budget, blowing tens of billions of pounds on unfunded spending is just as dangerous as blowing tens of billions of pounds on unfunded tax cuts.”
Mr Hunt is expected to have flexibility for tax cuts as a result of improved forecasts for the public finances on Wednesday, giving him extra “headroom” to meet his rule of having national debt as a share of the economy falling over a rolling five-year period.
He may also have extra money as a result of measures to curb spending on the unemployed.
The Prime Minister also vowed to “clamp down” on welfare fraudsters as part of a drive to get more people into work, branding it a “national scandal” that around two million working-age people were not in employment.
“It’s not sustainable for the country, for taxpayers, it’s not fair,” he said, promising reform of the welfare system.
“We must do more to support those who can work to do so, and we will clamp down on welfare fraudsters because the system must be fair for taxpayers who fund it.”
Mr Hunt used an appearance at a Confederation of British Industry event to promise a package of measures to boost business investment.
“I feel a lot more positive about the UK economy than I did a year ago when I came in,” the Chancellor said.
But with capital investment lagging behind rival nations, contributing to the productivity challenges which have dogged the UK economy, Mr Hunt promised action.
“What you will see on Wednesday, without going into individual measures, there’s a whole range of measures designed to unlock business investment and close that gap with countries like France, Germany and the United States,” he said.
Labour’s shadow chancellor of the Duchy of Lancaster and national campaign co-ordinator, Pat McFadden, said: “The Tories have failed to deliver on so many pledges from the past. Why should people believe they will deliver on pledges for the future?
“It sums up this Conservative Party to claim things will be better tomorrow when they can’t even fix the problems of today.
“After 13 years of Conservative governments, working people have been left worse off and the Conservative economic record lies in tatters. Only Labour can get our economy growing and deliver change for working people.”