In a major speech, the prime minister said: “You can trust me when I say we can responsibly start to cut taxes.”
The move is designed to boost sagging Tory poll ratings — and to force Sir Keir Starmer to say if a future Labour governor would reverse such a decision.
Making a speech to mark the halving of inflation, something he promised to do at the start of the year, Mr Sunak said the government could now “turn our attention to cutting tax”.
The PM suggested a cut to personal taxes was on the way by saying “we will reward work” and would take measures to “get the economy growing”.
He also said he believed in cutting taxes “carefully and sustainably” as he warned against any “simple, fairytale” promises. “We can’t do everything all at once. It will take discipline and we need to prioritise.”
Reports at the weekend suggested that Mr Hunt was considering a shock cut to income tax. But the chancellor emphasised on Sunday that he did not want to offer a tax cut “that fuels inflation”.
The Independent understands that a controversial cut to inheritance tax is now off the table, pushed back until at least next year. A government source said any tax cuts announced on Wednesday would focus on a supply side measures to boost economic growth – something an inheritance tax cut, a levy on wealth, does not do.
Cutting national insurance is now more likely than income tax, according to The Times, with Treasury officials thought to be of the view that it would be cheaper and less inflationary.
Mr Sunak has been under huge pressure from different Tory factions to cut inheritance tax, personal taxes and business taxes – with many of his MPs insisting the Spring Budget is too late to wait to revive party fortunes ahead of an election expected in autumn 2024.
The Tory leader also claimed handing over the UK economy to Labour would be “just as dangerous” as having Liz Truss in charge — recalling last year’s unfunded tax cut spree at the disastrous mini-Budget.
He claimed Keir Starmer and Rachel Reeves wanted to continue the “big spending approach”, pointing to the opposition’s £28bn green business plan.
“This makes the same economic mistake as last year’s mini-budget – blowing tens of billions of pounds on unfunded spending is just as dangerous as blowing tens of billions of pounds on unfunded tax cuts,” Mr Sunak said.
The chancellor, facing calls from Tory MPs to cut corporation tax, is expected to reduce business levies by extending the “expensing” scheme – a form of relief which lets business offset investment against corporate tax.
Mr Sunak and Mr Hunt also expected to squeeze benefits with a real-terms cut on Wednesday – a move set to spark outrage from charities and opposition.
Ministers were set to use the September figure for inflation when uprating benefits – a 6.7 per cent hike. But Mr Hunt could instead use October’s far lower figure of 4.6 per cent, saving around £3bn.
New analysis by the Resolution Foundation think tank said families would lose as much as £500 a year with the lower payments.
Mr Sunak said on Monday that the welfare system is not currently “sustainable”, as the government prepares to launch plan a new crackdown on claimants who refuse to engage with their jobcentre – potentially removing payments.
Meanwhile Paul Johnson, director of the Institute for Fiscal Studies (IFS), said the chancellor can only afford “a tiny [tax] cut here or a tiny cut there” on Wednesday.
The respected economist told Times Radio that any tax cuts would have to be followed by “incredibly tight spending plans” – including cuts to public services.
Although Mr Hunt has been said to have enhanced fiscal “headroom” of around £25bn, the IFS director said Britain’s grim debt picture meant there was little to play with.
“There’s lots of speculation that against his rather strange target there’s a little bit more room for manoeuvre. But that’s not real,” said Mr Johnson.
Mr Hunt is also expected to reveal a controversial squeeze on benefits in order to find savings – effectively cutting payments for millions of hard-pressed families.