The trouble with talking about tax cuts in a cost of living crisis

Sky high inflation makes tax cuts difficult for the government to countenance in the near term. But demographic changes will make them even harder to countenance in two or three years, writes James Moore

Chancellor Rishi Sunak has sought to damp down expectations of early tax cuts (PA)

Tax is going to be taxing for everyone for at least the next couple of years, according to the likes of Michael Gove and Rishi Sunak. In a cabinet of dim bulbs, they are two of the brighter lights in terms of brain power, as their recent comments have suggested.

Here’s why: one of the problems with cutting tax when inflation is heading off into the stratosphere is that you end up making the Bank of England’s job an awful lot harder at a time when its Monetary Policy Committee is already faced with a menu reading “no good choices” when it sits down to meet.

Loosening fiscal policy when you’re tightening monetary policy reads “worst possible choice” because it’s a zero sum game. You end up pushing interest rates higher and/or prolonging the pain of high inflation. Nobody wins. But tax cuts further on out become a whole lot more difficult when one starts to consider the demographic bind Britain is in.