Rishi Sunak confirmed on Monday that tax cuts will be in the Autumn Statement with the priority on businesses.
The Prime Minister stressed that he and Chancellor Jeremy Hunt were taking the decision to “cut tax” after having met his goal to halve inflation this year.
He outlined a series of decisions that the Government had taken to stabilise Britain’s public finances, including to reduce debt.
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“The second decision we’re taking is to cut tax and reward hard work,” he said in a speech in north London.
“What clearer expression could there be of my governing philosophy than the belief…that people, not governments, make the best decisions about their own money.”
But with prices still rising by 4.6 per cent, in October, the premier stressed ahead of the Autumn Statement on Wednesday that “we must avoid doing anything that puts at risk our progress in controlling inflation”.
The Government is believed to have considered a range of possible tax cuts, including to National Insurance, income tax or inheritance tax, at least one of which may happen.
However, Mr Sunak, who reshuffled his Cabinet last week, made clear that the priority would be lower business levies as the Government seeks to boost the economy, currently stalled with zero growth, and productivity.
Outlining public sector investment including in transport, he added: “Growth is all about getting the private sector to invest, too.
“That’s why the Chancellor and I are cutting taxes directly on investment.
“It’s why we’re cutting taxes to encourage innovation…because new ideas and ways of doing things are the most important way to raise our productivity.”
Earlier, leading economists warned that Mr Hunt would risk fuelling inflation if he announces a tax cut which “puts money quickly in people’s pockets”.
The Institute for Fiscal Studies stressed that some of the Chancellor’s fiscal “headroom,” possibly higher than previously expected at around £25 billion, is an “illusion” as more has been raked in from higher tax receipts in cash terms but funding for public services had not been increased to take into account high inflation.
Its head of tax Helen Miller added that the headroom was smaller than historically, there were “very tight” spending pressures, in the short term to deal with NHS waiting lists over 7.7 million and in the longer term to pay for an ageing population, and that inflation is still high.
She added: “If he does a tax cut which puts money quickly in people’s pockets and it’s the kind of people who spend money quickly, so think of lower earners, yes then that would be pushing up inflation.”
Mr Hunt suggested during a round of interviews on Sunday that the personal tax burden will not come down “overnight” as he seeks to avoid prices spiralling again.
The Government insisted that the Chancellor will not strip winter fuel cash from wealthy pensioners after one minister questioned why the handout should go to the comfortably off.
Shadow chancellor Rachel Reeves warned that cutting inheritance tax during a cost-of-living crisis.