Rishi Sunak is to risk a fresh rift within the Tory party over tax by sending out a signal that he will take a cautious approach to cuts ahead of the next general election.
In a speech to the Bayes Business School, the chancellor will say that any tax cuts must be “sustainable”.
And he will pour scorn on low-tax advocates who argue that reductions in the state take always pay for themselves by fuelling growth.
Mr Sunak’s speech comes just weeks after the MP appointed to head Boris Johnson’s Policy Unit, Andrew Griffith, said his priority in the role was to “return rapidly to the point when we can cut taxes to let everyone keep more of their own money”.
Senior Tory backbencher Peter Bone told The Independent he was “disappointed” at the chancellor setting his face against calls for swift tax cuts, such as the reversal of his planned ￡12bn hike in national insurance (NI).
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Delivering the annual Mais lecture in London on Thursday, Mr Sunak will say that he wants to deliver a “low-tax, higher-growth economy” as the cornerstone of a society in which private businesses and individuals can thrive.
But he will firmly reject the case for tax cuts which leave spending commitments unfunded.
“I am going to deliver a lower-tax economy but I am going to do so in a responsible way, and in a way that tackles our long-term challenges,” Mr Sunak will say.
“I am disheartened when I hear the flippant claim that ‘tax cuts always pay for themselves’. They do not.
“Cutting tax sustainably requires hard work, prioritisation, and the willingness to make difficult and often unpopular arguments elsewhere.”
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His comments will unsettle traditionalist Tories already dismayed at the increase in the proportion of national income taken by the state under Mr Sunak’s stewardship to its highest level since the 1960s, when the 2.5 per cent hike in NI contributions comes into effect in April.
They are hoping for deep tax cuts before the 2024 election to win back the support of voters facing a deep cost-of-living crisis in the wake of the Covid pandemic.
Mr Bone – who has branded the NI rise “socialist” – told The Independent: “I’m disappointed if the chancellor doesn’t think that keeping taxes down encourages growth, which encourages more people in work, which encourages more tax revenue.
“I would have thought that was something a Conservative chancellor would believe in. Quite aside from tax cuts before the election, he could start by not having this tax rise in a couple of months’ time.”
In his speech, Mr Sunak will insist that he is in favour of tax cuts so long as they are “sustainable”.
“I firmly believe in lower taxes,” he will say.
“The most powerful case for the dynamic market economy is that it brings economic freedom and prosperity.
“And the best expression of that freedom is for all of us to be able to make decisions about how to save, invest or use the money we earn.”
In an apparent effort to shake off his reputation for big-state spending after borrowing ￡400bn to pay for Covid support, Mr Sunak will insist that he believes that money generated by work is “far better spent by individuals and businesses than government”.
And he will issue a strong defence of the free market economy.
“As a machine for innovation and growth the free market is positively correlated with almost everything we imagine is desirable for humanity,” the chancellor will say. “Higher living standards, greater wellbeing, longer lives lived in greater leisure, freedom and peace.”
Shadow chancellor Rachel Reeves responded: “The chancellor may say he “believes” in low taxes in his lecture – but the hard facts are that Sunak has hit households and business with 15 tax rises in two years in post – with an unfair National Insurance rise down the line – and he has raised the most tax on average per budget than any chancellor in the last 50 years.
“Over a decade of Tory government, the economy has grown far slower than when Labour was in power, and it is set to go even slower in the coming years.
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“If the Tories had matched Labour’s record on growth in government, businesses would have grown faster and people would have had higher incomes, boosting the public finances.
“It is because the Conservatives are the party of low growth, that they are now the party of high tax.”