The Chancellor has insisted he wants to “lighten the tax burden” as he looks to temper expectations about the size of cuts coming in the Budget next month.
Speaking to the BBC’s Political Thinking podcast, Jeremy Hunt once again signalled that he could have less room to produce tax cuts at the Budget on March 6 than he did in November during the autumn statement.
It comes after he made the same warning to the Cabinet this week.
“It does not look to me like we will have the same scope for cutting taxes in the spring Budget that we had in the autumn statement,” Mr Hunt said.
“And so I need to set people’s expectations about the scale of what I am doing because people need to know that when a Conservative government cuts taxes we will do so in a responsible and sensible way.”
He added: “But we also want to be clear that the direction of travel we want to go in is to lighten the tax burden.”
The senior Conservative said he is still waiting for the “final numbers” from the Office for Budget Responsibility (OBR) to tell him how much so-called fiscal headroom he is likely to have to administer tax cuts or spending increases while meeting his fiscal rules.
He criticised the UK’s fiscal watchdog after its chief appeared to liken public finance forecasts last year to a “work of fiction”.
Mr Hunt said it was “wrong” for Richard Hughes, chairman of the OBR, to have made the remarks.
Earlier this month, OBR boss Mr Hughes offered a sharp criticism of Government clarity on projected public spending during an appearance before the Lords Economic Affairs Committee.
He told peers: “Some people call (the projections) a work of fiction, but that is probably being generous when someone has bothered to write a work of fiction and the Government hasn’t even bothered to write down what its departmental spending plans are underpinning the plans for public services.”
Many economists complained that last year’s autumn statement had factored in implausible squeezes to public spending, as the Chancellor sought to introduce tax-cutting measures while keeping a tight lid on projections for departmental budgets.
Asked about the remarks, Mr Hunt said: “Those words are wrong and they should not have been said.
“The Government decides spending plans and spending reviews.
“The next spending review will start in April 2025 and obviously until that point when that spending review is done, we do not publish our spending plans. No government ever has.”
But Paul Johnson, director of the Institute for Fiscal Studies (IFS) think tank, said Mr Hunt’s current spending plans mean there could be “some pretty significant cuts” for some public services even before further tax cuts are administered.
He told BBC Radio 4’s Today programme: “I think the transparent thing to do would be to say, ‘Here are my tax cuts, and this is what this would mean for education spending, social care spending, local government spending’.
“I think it would be very difficult to do it (cut taxes) without having some really significant effects on the quality of public services.”
The comments come after the International Monetary Fund (IMF) on Tuesday warned further tax cuts could risk the Government’s ability to invest money in the NHS and other vital services.
Mr Hunt cut national insurance in November’s autumn statement, a move the OBR thinks will cost the Treasury about £9.76 billion in the 2028 tax year.
In a reduction that came into force on January 6 and is being felt in pay packets this month, the main rate of national insurance was sliced by two percentage points, from 12% to 10%.
The Treasury says the change means a worker on a £35,000 salary will be £450 better off a year, although critics say the benefits are offset by the continuing freeze in personal tax thresholds, pulling millions into paying more to the Exchequer.
Ahead of a likely election later this year, Mr Hunt appears keen to cut taxes even further if he can, in a bid to boost the Conservative Party’s chances of clawing back a heavy opinion poll deficit against Labour.
Mr Hunt hinted that the IMF’s comments had irked him but said he agreed that “untargeted tax cuts that are just crowd pleasers” are not a good idea.
“But if they are strategic, smart tax cuts then that is a very important part of the strategy to grow the economy,” he told the BBC.
Shadow chancellor Rachel Reeves criticised Mr Hunt for “speculating” on his own Budget, calling it “grossly irresponsible”.
In an interview with ITV News, she said: “I do find it extraordinary that two weeks ago the Chancellor was going around saying he’s going to be the next Nigel Lawson cutting taxes, and then he was on your programme last night and in the media in the last couple of days saying that he’s not sure if we will be able to cut taxes.
“It is extraordinary that the Chancellor of the Exchequer is speculating like this on his own budget – I’ve never seen a chancellor behave in this irresponsible way before and, as you know, I’ve shadowed quite a few chancellors with all the comings and goings these last few years.”