Chancellor of the Exchequer Jeremy Hunt is widely expected to announce further tax cuts in the Spring Budget on 6 March – most likely a 1p or 2p cut to income tax. This is a pre-election gamble. The United Kingdom has no fiscal space for such a cut – as the Tony Blair Institute and the International Monetary Fund have warned. The only way to pay for it is by assuming unrealistically large cuts to public spending after the election.
Economically, the chancellor’s hope is that another tax cut will reawaken the country’s animal spirits and return the economy to growth. Politically, his hope is that repeating Norman Lamont’s pre-election tax-cutting strategy will convince voters to deliver another Conservative victory, as in 1992. Our new polling suggests this is wishful thinking.
A Pre-Election Tax Cut Paid for by Post-Election Austerity
It is hard to see how a tax cut of the scale being considered will reignite growth. A 1p reduction to income tax equates to a direct fiscal stimulus of around 0.3 per cent of GDP – enough to offset only one-tenth of the 3 per cent rise in the tax burden seen over the course of this Parliament so far, or barely enough to counteract the fall in GDP seen in the final quarter of 2023. Any pre-election income-tax cut must also be understood in the context of a rising overall tax burden. The chancellor’s existing plans already include tax rises after the election as temporary reductions in fuel and stamp duty are due to expire and the freeze on income-tax thresholds is set to persist, which will lead to more people paying higher rates of tax.
Moreover, the government is already running a sizeable fiscal deficit (expected to be about 4.5 per cent of GDP this fiscal year) and would have to borrow even more to pay for an income-tax cut. This would add to the national debt and worsen the fiscal situation in the short term. It does not require a degree in economics to know that cutting taxes at a time of high borrowing and rising debt will worsen the public finances. The only way the chancellor can get the fiscal arithmetic to add up is to “pay” for the tax cut today by cutting public spending in the future – a clear case of political short-termism. The net result of such a policy would be a slightly lower tax burden than otherwise would be the case and less spending on already stretched public services, but no change in the UK’s underlying fiscal situation, which remains poor. The debate on tax cuts is a distraction.
The UK economy has been in the doldrums for most of the past 15 years, including when the tax burden was much lower than it is today. Cutting taxes now is not only unaffordable, it is also a repeat of a policy that has so far failed to reignite growth. Rather than looking to the past for policy inspiration, the chancellor needs to look to the future for fresh thinking on how to put the UK economy back on track. The only sustainable path to tax cuts is fundamental reform of the state and the way public services are delivered. The Budget is an opportunity to begin down that path – to make the investments needed to reposition Britain for longer-term success, harnessing the rapid changes in technology to transform public services, do more for less and reimagine the state for the 21st century.
Out of Step With Voters
Not only do tax cuts seem like bad economic policy right now, they may also prove to be bad politics. A new poll conducted by Deltapoll on behalf of the Tony Blair Institute found that when voters are given a choice between raising, maintaining or cutting taxes and public spending, there is a clear majority across all voter types in favour of maintaining or even increasing taxes to pay for spending (Figure 1). Curiously, the age gradient of voter preferences flows against conventional political wisdom with older voters – who are more likely to vote Conservative – among the groups least likely to support tax cuts.
People who voted Conservative in the 2019 election seem similarly unconvinced, with 75 per cent opposing tax cuts. In addition, the previous round of tax cuts – a reduction to National Insurance contributions from 12 per cent to 10 per cent announced at the 2023 Autumn Statement – has so far not led to any change in voting intentions in favour of the Conservatives. Taken together, this suggests the political case for further tax cuts is on weak ground.
Across voter types, a majority prefer to increase public spending and taxes or keep them at the same level
Source: Tony Blair Institute & Deltapoll
Most voters want the government to safeguard or increase spending across all major public services (Figure 2). This stands in stark contrast with the government’s stated policy, which, as noted by the Office for Budget Responsibility, ringfences some spending (including for the National Health Service (NHS), defence and education) but implies real-term cuts to other services on the order of 10 per cent in the four years after the election, including areas such as transport, justice, policing and housing. These cuts are severe – around half as large as the austerity period of the early 2010s – and are opposed by around four in five members of the British public.
Across public services, a majority would prefer to increase public spending and taxes or keep them at the same level
Source: Tony Blair Institute & Deltapoll
Moreover, unlike in 2010, public services are starting from a position of weakness. Spending on public order and safety is still not back to its 2009 level in real terms, and the backlog in the Crown Court is now at a record high of more than 65,000 cases. Worse still, the chancellor is not expected to have much extra fiscal headroom to fund these cuts and so is reportedly considering an even more severe post-election spending squeeze to pay for them. This is a sign of how little the economic situation has improved since the Autumn Statement, how easy the government’s fiscal rules are to game and how desperate the government is to deliver further tax cuts ahead of the election.
Voters not only want the government to avoid myopic tax cuts, they also want the government to take a longer-term approach to spending decisions. Two-thirds of voters expect pressure on public services to rise in the coming decades, partly due to higher spending on health and pensions linked to the UK’s ageing population. Given the choice of how to spend a fiscal windfall, 52 per cent of voters would like the government to prioritise investment to end the short-term cycle of crises and improve the country’s long-term prospects (Figure 3). This compares to 21 per cent who would want any fiscal headroom to be spent on short-term measures to tackle immediate crises and emergencies in public services. Only 11 per cent of people want any extra funding to be used for tax cuts. Again, this is in stark contrast to the chancellor’s stated plan to cut public investment by around 10 per cent in real terms in the four years after the election – a case of robbing the future to pay for tax cuts today.
A majority of the British public would spend a windfall to improve the quality of public services
Source: Tony Blair Institute & Deltapoll
Reimagine, Don’t Revert
At TBI, we recognise the difficult choices facing the government and the long-term challenges weighing on the economy. The UK faces lacklustre productivity growth, which has risen by just 0.3 per cent per year during this Parliament, and an increasingly sick population with 2.8 million people now out of work due to long-term illness. There are no quick fixes to these problems, including short-term tax cuts that seem to be the wrong policy for the time, both economically and politically.
To truly take “long-term decisions for a brighter future”, the chancellor should not look to history for his policy playbook but to the future. There is one positive trend that has the potential to improve the UK’s long-term prospects and transform public-service delivery: technology.
For the Spring Budget, we urge the chancellor to ignore the siren calls for unaffordable tax cuts, and instead use his Budget statement to show progress on some of the positive reforms he initiated in November – including to pensions, planning and public-sector productivity. Announcements need to be followed by action.
We also urge the chancellor to be bolder in looking for new ways to harness the power of technology to reimagine government and address the pressing problems facing society. For example, the growing obesity crisis – which costs society an estimated £98 billion per year – means that investment in preventative health care should be at the heart of the Budget. Our Protect Britain policy programme makes the case that public investment in a tech-enabled adult health screening and early-treatment platform could reduce the incidence of obesity and other health problems later in life, reduce pressure on the NHS, increase the proportion of people in work and support economic growth.
TBI is not alone in recognising technology’s transformative potential. When asked whether the government should invest in new technology to improve public services, 64 per cent of those who expressed a view agreed. The message from our polling is clear: the chancellor should avoid tax cuts and prioritise long-term investment in tech-enabled public services. Voters want the government to take long-term decisions for a brighter future, and unaffordable tax cuts are the opposite.
Methodology
TBI commissioned Deltapoll to undertake a survey of British voters’ views on economic policy and the future of the state. Deltapoll interviewed a representative sample of 1,977 adults in Great Britain between 9 and 12 February 2024. The data have been weighted to age, gender, education, 2019 general-election vote, 2016 referendum vote, political attention, social grade and region within Great Britain. Due to rounding of the polling data, data visualisations and figures may not add up to exactly 100 per cent.
Full data tables can be found here.
Lead image: Getty