LONDON: UK Treasury officials told incoming Prime Minister Rishi Sunak tax cuts would have a “low impact” on boosting growth, a view that appears at odds with Chancellor of the Exchequer Jeremy Hunt’s promise of a 1980s-style “boom” sparked by giveaways planned for the annual budget in March.

       According to Treasury documents seen by Bloomberg that were presented to Sunak’s senior team in late 2022, increasing high-skilled immigration and changing planning rules to build more homes would both have a “high impact” on the economy with a “low” fiscal cost.

       Personal tax cuts would have a “low impact” despite coming at a “medium fiscal cost,” the Treasury said.

       The analysis provides an insight into the thinking within the Treasury, which is often accused by right-wing members of the Conservative Party of following an “orthodoxy” favouring higher taxes and migration.

       That was an argument made by former premier Liz Truss during her brief time in office, when she pledged major tax cuts that roiled markets and ultimately saw her quickly lose power.

       Yet it also suggests Sunak followed at least some of the Treasury advice – especially on overseeing a record surge in immigration – even as party politics dictated his embrace of tax cuts and reluctance to overhaul planning rules.

       The advice was commissioned to help find solutions to the major long-term problems facing the United Kingdom economy, which at the time was teetering on the brink of recession, as it has been since.

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       It was presented to Cabinet secretary Simon Case and senior ministers when Sunak took office, people familiar with the matter said, speaking on condition of anonymity to discuss private documents.

       Sunak’s office did not immediately respond to a request for comment. The Treasury declined to comment, though an official close to Hunt pointed to analysis by the United Kingdom’s fiscal watchdog which found that measures announced in the autumn – including a two percentage-point payroll tax cut and business investment incentives – would see a permanent 0.5% output boost by 2028.

       Despite the Treasury’s doubts about the relative merit of tax cuts, Sunak and Hunt are building the Conservative Party’s election campaign around them ahead of a UK vote expected in the second half of 2024.

       That plan will be bolstered by data published Tuesday showing the government borrowed less than forecast in December, as better tax receipts and lower debt-interest costs took the pressure off the United Kingdom’s public finances.

       Managing the economy sensibly meant “we can start cutting people’s taxes,” the premier told reporters Monday.

       Writing in the Mail on Sunday newspaper, Hunt compared himself to tax-cutting former Tory Chancellor Nigel Lawson and said that tax breaks would trigger a “massive technological boom.”

       Sunak and Hunt are considering cutting income tax and inheritance tax at the upcoming budget, Bloomberg reported last year. Tory lawmakers on the right of the party have called for more tax breaks throughout Sunak’s premiership.

       Still, it’s not clear that tax cuts will help Sunak’s bid to keep the Conservatives in power. The overall tax burden has risen to a postwar high on his watch, casting doubt on how much political credit he’s likely to get from pre-election giveaways.

       A YouGov survey published by The Times newspaper found 62% of voters want the government to prioritise public services over tax cuts.

       Rather than giveaways, Treasury officials said the economy would get a bigger boost by relaxing planning and immigration rules and encouraging foreign direct investment. All would have a high impact with a low fiscal cost, they said.

       Like his predecessors, Sunak has faced a major push-back on planning reform from Tory MPs who oppose building in their local areas.

       Meanwhile, the prime minister has also faced intense criticism from right-wing members of his party over the surge in immigration.

       That is awkward for the government because it is driven by people from outside the European Union, despite the Brexit promise that leaving the bloc would get numbers down. The documents suggest there are other areas where Sunak’s government and Treasury officials are aligned.

       Two of the personal policy priorities of the premier – skills reform and boosting the science and technology industries – were backed by the Treasury analysis as having a high economic impact.

       The Treasury also appeared to take a dim view of expensive long-term infrastructure projects, labelling them “low” impact and noting their “high fiscal cost.” Sunak appeared to have agreed: he controversially shelved the high-speed HS2 rail project from Birmingham to Manchester last year. — Bloomberg