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Massive tax rises planned by Chancellor Jeremy Hunt could ‘choke off growth’ and trigger a deeper recession, a former Cabinet minister warned yesterday.
Simon Clarke, who was Levelling Up Secretary in Liz Truss’s government, urged ministers to focus on spending cuts rather than tax rises as they scramble to balance the books ahead of Thursday’s Budget.
Mr Clarke, who also served as Rishi Sunak’s deputy during his time at the Treasury, told Sky News: ‘I believe very strongly that with the tax burden at a 70-year high, we need to be extremely careful about further increasing the challenges facing businesses and households.’
Sources said the Budget was likely to comprise around £33billion in spending cuts and £21billion in tax rises, on top of the £32billion in tax increases announced by Mr Hunt last month.
Mr Hunt has already confirmed tax rises for everyone as 45p top rate was lowered to £125,000
Mr Hunt rejected the idea that the Government could implement unfunded tax cuts now to ease the pain of a looming economic downturn.
In a thinly-veiled swipe at Miss Truss, he said: ‘We have tried that. We saw it didn’t work, we’ve learnt from those mistakes. And so now is a chance to put in place a plan that does stand the test of time.’
Mr Hunt insisted that he remained committed to lower taxes in the long term, but said the Government first had to get a grip of the inflation causing havoc for family finances and businesses.
All eyes are on Mr Hunt as wide ranging cuts are expected to be announced in the upcoming Budget
‘Sound money has to come first, because inflation eats away at the pound in your pocket or pound in your bank account, every bit as insidiously as taxes, because it pushes up the cost of your weekly shop,’ he said.
But the prospect of soaring taxes is causing unease among Tory MPs.
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Former leader Sir Iain Duncan Smith said: ‘If they try and hammer us too hard with tax rises they will drive us deeper into a recession, and any deficit they think is there will grow.’
Ministers are still debating whether to change the law to allow local authorities to push through inflation-level increases in council tax increases without holding a local referendum.
Former Secretary of State for Levelling Up Simon Clarke says cuts should go further to ease tax burden
But a string of other tax rises are now said to be locked in ahead of Thursday’s statement.
These include a six-year freeze on income tax thresholds that is expected to drag more than three million people into higher tax brackets.
The starting threshold for paying 45p tax will be cut from £150,000 to £125,000, hitting more than 200,000 higher earners.
Thresholds for National Insurance, inheritance tax and tax-free pension savings will also be frozen, while the threshold for paying capital gains tax will be halved to about £6,000.
Government departments will face big real terms spending cuts after 2025 to help balance the books. Casualties of the cuts look set to include the Government’s flagship cap on social care costs, which is likely to be delayed until after the next election.
But Mr Clarke said spending cuts should go further to ease the pressure on taxes.
He suggested the £100billion HS2 rail project should be cut back, adding: ‘We’ve seen rail passenger numbers have not recovered to pre-pandemic levels, particularly for commuter travel. There are real questions about schemes like this which I think ought to be addressed first.’
The Chief Secretary to the Treasury yesterday said ministers would also be seeking savings through ‘rooting out waste’.
John Glen said Government could be made ‘more efficient’ by accelerating the sale of under-used buildings, particularly in central London, and ‘turbo-charging’ plans to digitise public services.
