Rishi Sunak faces tough crowd in Manchester. The Prime Minister will be welcomed at the party's annual conference by Tory loyalists who considered him their second choice for leadership.
He may have extra confidence in his moves after official data showed the UK economy had recovered faster. shortly after the lockdown, but many analysts still believe the UK is heading towards a recession, which will create a gloomy election backdrop.
Sunak did find time to let his hair down last week, joking that he was preparing to serenade the crowd with Elton John's Tiny Dancer song at the traditional karaoke evening at the end of the conference.
Was the song chosen by Liz Truss? Performing Shaggy's 'It Wasn't Me,' Sunak said.
Although Truss can no longer govern the country, she remains a thorn in Sunak's side. His predecessor as Prime Minister is now part of a growing group of Conservatives who are pressuring the Prime Minister and Chancellor to cut taxes.
Jeremy Hunt has gone to great lengths to downplay the significance of tax cuts to inflation – which currently stands at 6.7%, closer to the Bank of England's target of 2%.
He recently said any short-term tax cuts were “virtually impossible”. But prudence does not lead to election victory.
0110 Cost of interest on debt
Former chancellor George Osborne said last week that his 2007 Tory conference pledge that only millionaires would pay inheritance tax had an “electric effect” that “stuck “over us for many years later, and it still hangs over the Tory party today.”
“[People want to know] where the next big promise like this is we can make at the party conference that will change policy and that's exactly what happened in the polls,” he said.
The Conservative Growth Group of of about 60 Conservative MPs who successfully campaigned to scrap the so-called doctors' tax – or the cap on lifetime benefits that determine how much can be saved tax-free in retirement – is now calling on Hunt to get rid of death taxes too.
< p>One of the members says: “We want this to be recorded at the conference and for action to be taken.”
“It looks like the government is moving in our direction, but we need politicians in the autumn because we need to build up faith before the spring.”
They want Sunak to prove he really is a “low-tax Tory” after he presided over the biggest ever peacetime tax rise.
Under his watch, the average family will be forced to pay out £3,500 more a year. tax year for the next election.
Changes in tax revenues in each government
Sunak's decision to freeze the levels at which people start paying income tax, and the higher rate itself, is equivalent to a 4p increase in the base rate, according to the Office for Budget Responsibility (OBR).
This means any cuts will only partially offset Sunak, who has previously promised to cut his basic income tax rate by a penny.
Sir Charlie Bean, a former senior official at the Office for Budget Responsibility (OBR), the government's tax and spending watchdog, likens any tax cuts to a financial sleight of hand where Sunak and Hunt will simply “give him back the extra taxes he receives.”
But Sir Charlie also warns that higher borrowing costs mean extra tax revenue will be spent on servicing Britain's debt.
“My guess is that any additional tax revenue will be more than offset by higher interest on the debt.” he says.
Even in March, the OBR expected debt interest costs to reach 4.5% of GDP in 2022-23, more than double the 2% spent the previous year and the highest since the moment following it. World War II.
A rise in the Bank of England's base rate from 4% in March to 5.25% today, as well as concerns about the Bank's ability to control inflation, has left the UK facing an extra £20bn a year in interest on debt due to of which maintenance costs will exceed £100 billion by the end of the decade. This is more than the entire education budget.
With little room to cut taxes, Hunt is now concentrating on how to reduce the size of the state, which has ballooned to more than 50% of the economy during Covid and is expected to stabilize at around 43.4%. highest sustained level since the 1970s.
0110 Economic turmoil makes government bigger
His conference speech will focus on how the Tories will ensure government spending stops growing faster than the economy.
Recent OBR forecasts show that from the end of this decade the UK economy is expected to grow by 1.6% a year, and government spending – even excluding interest on debt – is expected to grow by 2% a year . Simple math shows that this is unsustainable.
There are also questions about how important corporate Britain is to the prime minister, with businesses bearing much of the burden of higher taxes.
The sector, which craves stability, was recently blindsided by Sunak's decision to scrap the bottom line. zero targets to ban the sale of new cars with petrol or diesel engines from 2030 to 2035. He also significantly weakened the plan to phase out the installation of gas boilers.
Raine Newton-Smith, director general of the Confederation of British Industry (CBI), says businesses were “disappointed” by the claims. “They're just concerned about the signals it's sending. What you say, and the policies behind it, really matter.
“As one business leader told me, “If government sets goals, we can innovate around them. But if the targets keep moving, we don't know where we are.”
Newton-Smith says there is now a risk the UK will lose out on vital investment while other countries step up efforts to attract it. .
“We will lose investment if we are not clear about what we are trying to achieve and if we see even more changes in objectives.”
2006 UK less attractive than other G7 members
The CBI, which is struggling with its own financial turmoil, will push its autumn statement at the Labor and Tory party conferences, where it will call for business tax breaks to be made permanent and for more policies to tackle Britain's skills shortage.
But with Sunak's narrow victory in the Uxbridge and South Ruislip by-elections in July bringing the government's plans to zero, maintaining healthy businesses is unlikely to be high on Sunak's list. He won because the Tories campaigned against ULEZ.
“The by-election results showed that if we took on the anti-car coalition, we could win,” says one former Cabinet minister. Abandoning part of the unpopular and increasingly expensive HS2 rail line has also been discussed, with some suggesting further delays to the project could give Hunt more leeway to cut taxes.
Paul Hollingsworth, chief European economist at BNP Paribas, says Britain's economic performance is nothing to brag about. “If our forecasts are correct and we see the UK just coming out of recession, you probably won't want to make the economy the center of your campaign, right?”
Timing will also be of the essence. Ten of the last 14 general elections have taken place in either May or June, and there is some speculation that Sunak is leaning towards a spring vote tied to local elections.
But John Redwood, who stood for Margaret Thatcher's Political Department believes a later election will give Sunak a better chance of winning.
“It should be late autumn next year rather than early 2024 because it is more likely we will see better growth and faster growth growth.
healthy government finances later this year.
“People want inflation to be much lower than it is today. My message to the Chancellor is to cut taxes immediately and let them bear fruit, because yes, we need to bring prices down, but we simply cannot ignore economic growth.”
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