Britain’s Conservative government pushes tax cuts in hopes of bolstering electoral chances

LONDON (AP) — Britain’s Conservative government sought to regain the political initiative Wednesday with a series of tax cuts for businesses and individuals that it hopes will bolster its chances in a national election next year that opinion polls suggest it will lose.

Treasury chief Jeremy Hunt said the British economy “had turned a corner,” with inflation and government borrowing down, allowing him to offer what he termed the biggest set of tax cuts since the 1980s.

“After a global pandemic and energy crisis, we have taken difficult decisions to put our economy back on track,” he told the House of Commons.

Prime Minister Rishi Sunak and Hunt are desperately searching for an economic feelgood factor to boost Conservative election fortunes. It comes as opinion polls for months have put the governing Conservative Party, which has been in power since 2010, well behind the main opposition Labour Party.

The most high-profile measure in Hunt’s autumn budget statement was a bigger-than-expected cut to national insurance — a tax that employees pay — by 2 percentage points to 10%, which 27 million individuals are expected to see in their wages as soon as January.

“If we want people to get up early in the morning, if we want people to work nights, if we want an economy where people go the extra mile and work hard, then we need to recognise that their hard work benefits all of us,” he added.

Other potential sweeteners for voters were hefty increases in the minimum wage, pensions and benefits.

Though Britain avoided the recession that many had anticipated this year, expectations for the country’s economic growth have been downgraded by the independent Office for Budget Responsibility.

This year, the British economy is expected to grow 0.6%, up from a March forecast of a 0.2% contraction. Over the next two years, growth is predicted to be 0.7% and 1.4%, respectively, way down from the previous forecasts of 1.8% in 2024 and 2.5% in 2025.

That means the election will be fought amid in a low-growth environment. The election must be held by January 2025, with speculation focusing on May or sometime next fall.

To bolster economic growth and living standards, Hunt said the British economy needs to be more productive. As such, he said 110 budget measures outlined Wednesday on such things as skills, housing and planning will “unlock” 20 billion pounds ($25 billion) worth of investment and boost productivity.

His biggest measure for business was to make permanent full expensing of capital investment, which allows firms to offset their spending on plant and machinery against profits.

“That is the biggest-ever boost for business investment in modern times,” he said.

Despite the tax cuts, the overall tax burden in the U.K. is still expected to rise to its highest level since World War II because higher inflation is dragging more people into higher tax bands, which have been frozen for years.

That’s an uncomfortable position for the Conservative Party, which has traditionally identified itself as the low-tax party.

The Office for Budget Responsibility said Wednesday’s measures would reduce the tax burden by 0.7 percentage point of Britain’s annual economic output, but it still rises every year to a post-war high of 37.7% in 2028-29. Living standards, it added, are forecast to be 3.5% lower in 2024-25 than before the COVID-19 pandemic.

It also noted that much of the government’s largesse relied on a decision not to raise departmental spending by inflation — a commitment that many economists think will be difficult to meet.

With public finances still stretched by historical standards, economic growth muted at best and inflation set to remain double the Bank of England’s target rate of 2% next year, experts have warned that the government hasn’t got much room for further big giveaways in the run-up to the election.

Gemma Tetlow, chief economist at the Institute for Government, said that for all Hunt’s rosy comments about the British economy’s better-than-anticipated performance this year, the growth outlook has actually deteriorated, making it difficult for him to cut taxes again before the election.

“He is taking a bit of a gamble by giving away all of the good news that things don’t move against him next time, which could leave him scrabbling around to find savings somewhere else,” she said.

Over the past year, Labour has sought to point the finger at the Conservatives for “crashing” the economy during the short-lived premiership of Liz Truss, which foundered after a series of unfunded tax cuts roiled financial markets and sent borrowing costs surging.

Sunak succeeded Truss in October 2022 on a pledge to stabilize the British economy after the turmoil, involving a reversal of the bulk of her tax cuts.

“The British people won’t be taken for fools,” Rachel Reeves, Labour’s economic spokesperson, said following Hunt’s statement. “They know that what has been announced today owes more to the cynicism of a party desperate to cling onto power.”


AP writer Jill Lawless contributed from London.