LONDON (AP) — A leading British think tank that specializes in the state of the country’s public finances thinks there’s a “weak economic case” for further tax cuts in next week’s budget, which the Conservative government is hoping can give a lift to its prospects at the general election later this year.
With the Conservatives trailing the main opposition Labour Party heavily in opinion polls, Prime Minister Rishi Sunak and his Treasury chief, Jeremy Hunt, have been hinting that tax cuts, possibly on income, will be on the agenda.
The problem, as identified by the Institute for Fiscal Studies on Tuesday, is that the public finances are not healthy enough for tax cuts in an economy in recession — unless the government shows clearly how they will be paid for by keeping a lid on public spending, such as on schools, hospitals and roads.
The IFS said failing to set out exactly what spending cuts would be used to “pay for” tax cuts would “lack credibility and transparency.” It also said that making spending cuts on an array of services lacks credibility, too, given how stretched many are.
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Like other developed economies, Britain’s public finances have taken a heavy hit in the past few years, as a result of the big spending associated with the coronavirus pandemic and the spike in energy prices following Russia’s invasion of Ukraine.
But with an election looming and the opinion polls pointing to a heavy Conservative defeat, Hunt is under pressure from members in this party to cut taxes when he delivers what is likely to be his final budget before the election on March 6.
The Conservatives, who have traditionally portrayed themselves as the party of low taxes, are fighting the election with an uncomfortable backdrop — the overall tax burden is approaching record levels as the government has had to pay the bills for its spending during the pandemic and the subsequent oil price shock.
Last November, Hunt started the process of cutting taxes — but the opinion polls have barely budged. He will be hoping that anything he does announce can turn the dial and potentially act as a launchpad to a general election as soon as the spring.
The election must take place by January 2025, but the exact date is in the hands of Sunak. Most speculation has suggested it will be in the fall.
