Jeremy Hunt said his autumn statement has given voters a “very clear choice” at the next election, as he defended tax cuts that leave public services facing what economists called an “implausible” spending squeeze.
The Chancellor insisted it was “silly” to regard the tax giveaways as a sweetener for the public amid speculation a general election could be called in the spring.
Touring broadcast studios a day after announcing a national insurance cut worth £10 billion and savings for businesses, Mr Hunt said he chose measures to “make the biggest difference to our long-term competitiveness” rather than opting for “crowd pleasers”.
He denied that his move would result in worse public services after analysts pointed out he had in effect found £20 billion for tax cuts by choosing not to protect them against the growing costs of inflation.
Richard Hughes, chief of the Office for Budget Responsibility fiscal watchdog, told the BBC’s Today programme: “In some ways, by not changing the level of public spending in this autumn statement, that’s given him £20 billion to spend on tax cuts.
“Had he reflected the rise of inflation in the public spending plans, he wouldn’t have had that fiscal headroom.”
The Resolution Foundation said Mr Hunt’s tax cuts “rest on a fiscal fiction – implausible spending cuts”, including unprotected departments facing reductions of 14% in their real per-person day-to-day spending and capital spending falling by a third as a share of GDP – equivalent to a £20 billion annual cut in investment.
Paul Johnson, director of the Institute for Fiscal Studies, said the Chancellor’s plans are based on “questionable, if not plain implausible, assumptions”, including that “many aspects of day-to-day public service spending will be cut”.
Asked whether public services will suffer, Mr Hunt told Times Radio: “No, and the reason is very straightforward. If we want to have money to invest in the NHS, in schools, in our armed forces over the longer term, you have to grow the economy.
“It’s a fundamental Conservative principle that we think you need to grow the cake before you have discussions about how you cut it up.”
Downing Street played down concerns that public spending plans for the next parliament will damage services such as the police, prisons and schools.
Total departmental spending will be £85 billion higher in real terms over the next five years compared to the start of this parliament in 2019-20, Rishi Sunak’s spokesman told reporters.
He rejected the Resolution Foundation’s assessment that public spending cuts would be similar in scale to the peak years of austerity, after the organisation described as “far-fetched” the idea that there is as much scope for such cuts as there was in 2010.
The official said: “I don’t think when departmental spending is significantly increasing that is a claim that adds up”.
The Prime Minister is “confident” the measures struck the “right balance in supporting the British economy, supporting the British public” and maintaining fiscal stability, his spokesman said.
The scale of Mr Hunt’s fiscal package and his announcement that the national insurance cut will take effect in January rather than April was seen by Westminster watchers as a possible sign of an election in early 2024.
The Chancellor told broadcasters he had “absolutely no discussions” with the Prime Minister about the timing of the election.
But the senior Tory did not rule out a February spring Budget, telling LBC: “Normally it’s in March, but we will make a decision at the appropriate time.”
He used his Commons statement on Wednesday to cut the 12% national insurance rate on earnings between £12,570 and £50,270 to 10%, saving someone earning £35,000 more than £450.
A tax break allowing firms to cut their bills if they invest in new equipment will also be made permanent.
Mr Hunt told Sky News on Thursday: “We’re trying to make the right decisions for the long-term growth of the British economy.”
He also said “it’s silly to think about this in terms of the timing of the next election”.
But he went on to point out the difference between the Tories’ and Labour’s approach to the economy, saying when people go to the polls “there is going to be a very clear choice as a result of the decisions that I made yesterday”.
Despite the earnings bonus, millions of workers will face a squeeze on their finances with the tax burden still set to reach a record high.
The continuing freeze in personal tax thresholds will wipe out the benefit of the national insurance reductions for many workers, as higher earnings see millions pulled into paying more to the Exchequer through “fiscal drag”.
Mr Hunt conceded that “of course” taxes were going up to pay for Covid-19 pandemic support and Government intervention to help the public through the spike in energy prices triggered by the war in Ukraine.
“But yesterday I did make a start in bringing down the tax burden,” he told Today. “I’ve never said that we were going to get there all in one go.”
The Resolution Foundation warned that the Chancellor’s decision to spend almost all of the £90 billion windfall on his package of cuts left him with headroom against his debt rule of just £13 billion going into a spring Budget.
“This is risky, fiscally (falling debt remains something happening only in a far-away future of which we know nothing), and politically (a further fiscal event remains before the next election that could easily see this fiscal space wiped out, something that would require tax rises or spending cuts at a difficult point in the political cycle),” the think tank said in its analysis.
It also calculated that the richest households will gain most from Mr Hunt’s changes, with the top fifth gaining £1,000 a year on average, five times the £200 gains for the bottom fifth.
Labour leader Sir Keir Starmer acknowledged that his party would face “tough choices” if it wins the next general election.
But he said that the autumn statement was a sign of Conservative “failure” over the last 13 years.
“If we are privileged enough to come into power, I don’t underestimate the challenges that we will face because of the 13 years of failure that we’ve already had,” he told broadcasters.
“I think whichever way the Government tried to spin the autumn statement, the reality is that living standards are dropping, the tax burden is going up and that disposable income at the end of this government is going to be less than it was at the beginning for ordinary working people.”