Hunt to pledge cuts to spending to free up cash for tax cuts

Jeremy Hunt set to pledge cuts to Government spending in bid to free up cash for tax cuts – but sources deny the Chancellor is set to bring back austerity

• The Chancellor try to draw a clear dividing line with Labour on tax and spending 

Jeremy Hunt is poised to unveil plans to squeeze the size of the State to free up cash for tax cuts.

The Chancellor will use a speech next week to Margaret Thatcher’s favourite think-tank to draw a clear dividing line with Labour on tax and spending.

He will argue that the only way to reduce Britain’s record tax burden is to grow the economy and squeeze bloated state spending.

Mr Hunt is expected to warn that most Government spending outside health and defence faces a painful crunch in the coming years.

And he will say stagnant productivity rates in the public sector have to improve, including through the greater use of technology.

Chancellor Jeremy Hunt will use a speech next week to Margaret Thatcher’s favourite think-tank to draw a clear dividing line with Labour on tax and spending

Shadow chancellor Rachel Reeves yesterday announced a delay to her flagship plan to borrow £28billion a year for spending on green energy initiatives after acknowledging it could ‘crash the markets’

A Treasury source said: ‘Jeremy believes it is time to make the argument that the size of the State has grown too big relative to the size of the economy.

‘No one wants a return to austerity, so we need to find a way of raising productivity in the public sector significantly to get more for less.

‘Until the economy is growing faster than state spending, it is very difficult to make serious inroads into reducing the overall tax burden, which everyone wants to see.’

Senior Tories believe the plan will contrast favourably with Labour’s proposals for a spending spree that would risk pushing taxes and interest rates higher in the long term.

Shadow chancellor Rachel Reeves yesterday announced a delay to her flagship plan to borrow £28billion a year for spending on green energy initiatives after acknowledging it could ‘crash the markets’.

But she insisted Labour was still committed to meeting the spending target in the longer term.

A Tory source said: ‘Labour continues to… jeopardise responsible fiscal rules. We are prepared to actually deal with the issues which need to be gripped to stop the public finances getting out of control.’

Mr Hunt is under pressure to reduce the tax burden, which has hit record levels in the wake of the pandemic.

Rishi Sunak is keen to cut 2p off the basic rate of income tax and is also under pressure to ease punishing business taxes and death duties

Rishi Sunak is keen to cut 2p off the basic rate of income tax and is also under pressure to ease punishing business taxes and death duties.

But No10 and the Treasury fear the chances of significant tax cuts this autumn are fading after steep rises in the cost of Government borrowing.

Bloomberg warned yesterday that a surge in interest rates and gilt yields would blow a £9billion hole in the public finances.

Instead, the Chancellor is expected to wait until spring next year to demonstrate that he and the Prime Minister are serious about reducing crippling tax levels.

In his speech to the Centre for Policy Studies next week, Mr Hunt will point to figures showing Government spending accounts for 45 per cent of GDP – up from 35 per cent at the turn of the century.

Setting out plans to accelerate the digitisation of Government services, the Chancellor will say raising productivity in the public sector by just 1 percentage point would be enough to get the economy growing faster than state spending.

Former Chancellor George Osborne last night backed the Government’s approach, saying: ‘You can’t deliver permanent reductions in tax until you get a grip on the public finances. So that’s what’s happening.’

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