Fuzzy Tax-Cut Plans Show Sunak Far From Ready for Early Election

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(Bloomberg) — Jeremy Hunt’s budget left his Conservative Party convinced the government is still some way off calling an election. There was little surprise, and the closest he came to pulling the proverbial rabbit from his hat — an idea to abolish a key payroll tax — triggered 48 hours of confusion. 

Government officials now expect another pre-election fiscal event later this year, when lower inflation and interest rate cuts could provide the Chancellor of the Exchequer with more headroom for further tax cuts. That could potentially include a cut to income tax, as some Sunak advisers have sought, and be combined with a manifesto setting out more detail on Hunt’s ambition to scrap national insurance contributions altogether. 

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Most Tories don’t expect Prime Minister Rishi Sunak to call a snap election in May, despite persistent rumors around Westminster that he has repeatedly declined to quash. One MP said with the Labour Party ahead by 27 points in a YouGov poll published Friday, they agreed with former Conservative Chancellor George Osborne’s verdict that an early election would be “insane.”

Yet Hunt’s performance spurred another question among Tory lawmakers: even if the election was pushed back much later — Sunak can wait until January if he wanted — do the premier and the chancellor have anything up their sleeve that could stave off defeat?

Allies say the pair share the view that income tax and national insurance mean Britons face an unfair double tax on work. The Tories will include in their manifesto a plan to abolish national insurance completely over a long time-frame, people familiar with the matter said.

Despite Hunt floating the idea in post-budget interviews that the solution could be to merge the two levies, that won’t be the plan, they said.

Conservative advisers are also looking to pledge more immediate cuts to income tax, and potentially other areas such as property stamp duty. Those will form the centerpiece of their manifesto, depending on what is considered most politically advantageous by Sunak’s office and affordable by the Treasury.

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That aim is to create an ideological divide on the economy with Labour, who the Tories will try to paint as supporters of higher taxes and a bigger state. That’s despite the Office for Budget Responsibility finding Hunt’s budget will see the UK tax burden rise to the highest level since 1948. 

One minister said Sunak’s plan was still to hold the election later this year and hope something comes along before then to move the polls. While autumn is most likely, July is possible, they said. Other people familiar with the matter said detailed work on manifesto policies hasn’t even begun.

A Downing Street spokesperson declined to comment on the manifesto and referred back to Sunak’s remarks Thursday. “I was very clear about this at the beginning of the year about my working assumption for the election being in the second half of the year — nothing has changed since then,” Sunak told the BBC.

A key reason for the rumors about an early ballot is that civil servants have been told by their bosses to hold off on bigger projects that run beyond May. Yet that could simply reflect the fact that the government has little in the way of major policy work planned, one official said.

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But while Hunt got through the budget without triggering a Liz Truss-style market meltdown or a public backlash from Conservative MPs, privately some Tories were critical of Downing Street’s approach.

Several MPs described the focus on tax cuts as a “core vote” strategy designed to prevent a large Labour majority, rather than something that would shift the dial with swing voters. That was essentially admitting defeat, one said.

Others called the strategy incoherent, noting that while tax cuts appeal to part of the Tory base, the budget left pensioners — statistically most likely to vote Conservative — worse off. A core vote strategy that made the core vote poorer, was how one MP described it. Labour officials said it gave them an opening.

“There is no clamoring from the general public for tax cuts, and many are squeamish about any potential cuts to public services which are already seen to be on their knees,” said Scarlett Maguire of the pollster JL Partners. She said the strategy could work with voters currently saying they would vote for Reform UK, or who are unhappy with the government but would still prefer the Tories to Labour. “These are the groups that are more likely to favor tax cuts.”

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Some Conservatives also have doubts about committing to abolish national insurance. A Tory strategist said it invited Labour accusations about reckless tax-cutting measures and let the opposition party put the focus back on Truss’s disastrous premiership. That would be especially damaging because the Conservatives want to target Labour’s own spending plans in the campaign.

Meanwhile some Sunak allies are urging the prime minister to come up with a dramatic pitch to voters, and to replace Hunt with a fresh face to reinforce the message, potentially Energy Secretary Claire Coutinho. Other Tories dismissed the idea, saying Coutinho had no recognition with voters and the idea had little merit other than promoting a Sunak Cabinet ally.

More broadly, though, the mood in the party is flat as MPs realize no tax cut or clever spending trap for Labour is likely to be enough to shift the momentum, one Conservative lawmaker said. Voters just want change, they said. The evidence suggests Sunak plans to make them wait.

—With assistance from Lizzy Burden.

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