Speculation is mounting that Rishi Sunak will announce an early cut in income tax this autumn as part of a raft of measures aimed at tackling the cost-of-living crisis.
The cut in the basic rate from 20p to 19p was due to take effect in April 2024. But the i news site reported that the chancellor is “plotting a possible early cut” amid “growing political pressure to intervene” and “reduce the burden” on struggling households.
Officials are “studying deficit projections from the Office for Budget Responsibility to work out whether an autumn tax cut would be affordable”, the site said.
But according to The Times, “other ministers believe that cutting VAT would provide a more significant boost to the economy”.
What is the government planning?
Foreign Secretary Liz Truss told BBC Radio 4’s Today programme this morning that Sunak was examining new measures to help with the cost of living “very, very urgently”.
Hinting at what those measures may involve, she said that “the key response to the huge global inflation crisis we’re facing is to make sure our economy grows” and that “what we know is a low-tax economy helps deliver that business investment, helps to deliver those jobs”.
“I know the chancellor is looking at those things,” Truss added.
Sunak has previously played down the chances of imminent interventions, however. And Politico’s London Playbook said a Treasury source had “steered” the site away from talk of an early tax cut.
Such speculation is being fuelled by newly published figures from the Office for National Statistics that show inflation has hit a 40-year high. The rate soared to 9% last month – the highest level since 1982. And the Bank of England warned earlier this month that inflation could peak at more than 10% later this year.
Responding to the latest data, Sunak said: “We cannot protect people completely from these global challenges but are providing significant support where we can, and stand ready to take further action.”
The Guardian’s economics editor Larry Elliott argued that “the words ‘stand ready’ are a clear sign that the Treasury will come up with something to help those most affected by rising inflation”.
“The only questions are how generous the support package will be, and when it will arrive,” Elliott added.
Boris Johnson told MPs at today’s Prime Minister’s Questions that the government would look at “all measures in the future” to support families. The PM reminded the Commons that a cut in National Insurance (NI) for millions of workers was already set to kick in from July.
The threshold at which people start to pay NI will rise from £9,880 to £12,570, which will save a “typical employee” more than £330 a year, according to the Treasury.
Sunak is also expected to promise a tax cut for businesses when he speaks at the annual Confederation of British Industry (CBI) dinner this evening. The chancellor is to tell business leaders: “We need you to invest more, train more, and innovate more. In the Autumn Budget we will cut your taxes to encourage you to do all those things.”
