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Tax cuts, tax rises and keeping it together before and after election

Good morning. Here’s a prediction I feel close to 100 per cent comfortable making: whichever party wins the next election will raise taxes by more than they claim during it.

How Rishi Sunak and Keir Starmer and, equally importantly, Jeremy Hunt and Rachel Reeves navigate that is one of the big questions not only in terms of who wins the next election, but what happens afterwards. Some thoughts on that below.

Meet your match

Jeremy Hunt sat down for a big interview with the FT ahead of his Mansion House speech in the City of London tonight. As you’d expect, there was an awful lot in it — read the main points here, while George Parker also got a funny-but-important story about the chancellor having his application for a Monzo card turned down.

But the important political story is Hunt ruling out big pre-election tax cuts in this year’s autumn statement, and using language that will make it difficult to justify tax cuts ahead of an election next year, too. Here’s the money quote:

“We will not countenance tax cuts if they make the battle against inflation harder.”

Now, this is entirely the right approach in policy terms, and, I think, politically, too. And yes, it is possible that by the next election UK inflation will have reached a stage where Hunt can deliver tax cuts in a way that doesn’t lead to his words this week being thrown back at him. But I’m not going to bet on it.

That said, as the chancellor says in our interview, he is already taking political brickbats for avoiding inflationary tax cuts now. So while Hunt might personally wish to hold the line on tax cuts, the Conservative party’s internal dynamics mean he will end up having to do something on tax this side of the election.

That’s the big known unknown to bear in mind whenever you read stories about what the Labour opposition may do in terms of matching Tory spending plans. In the Sunday Times, Caroline Wheeler reports that, if elected, Labour would follow the Conservatives’ tax and public spending policies until growth returns to the economy (more on the broader hurdles to Labour’s economic plans from Martin Wolf here). There’s no doubt that many with Keir Starmer’s ear would like to do exactly that. And in a perfect world, they are surely right. There is a good reason why Tony Blair and David Cameron opted to play that card: it minimises the risk of loss aversion that is always such a powerful hand for the government of the day.

When Blair and Cameron made those promises to stick to the government’s spending commitments, however, those commitments looked credible and the economy they were presiding in was not in crisis. Yes, Ken Clarke later commented that there was no prospect that the Conservatives would have themselves kept to their “eye-wateringly tight” spending plans, and Cameron ultimately had to abandon his pledge to match Labour spending in 2008.

But when they made those commitments, no one responded by saying “what, are you nuts?!” There is a real possibility that, confronted with the twin task of managing the UK’s economy and a fractious Conservative party, Hunt and Sunak are unable to avoid ending up with a set of plans that provoke exactly that reaction.

As such: while many in Labour are right to want to minimise the risk of being attacked over tax, it’s far from certain that they will want to match wherever Hunt ends up on tax and spend.

Now try this

I had a lovely weekend: I particularly enjoyed reading Imogen Savage on how three amateurs cracked a 445-year-old code to reveal Mary Queen of Scots’ secrets, Emma Jacobs on Ryan Reynolds’ LinkedIn habits, and Janan Ganesh on why London is awesome.

But my favourite piece this week was Robert Shrimsley’s weekend column. Unlike Robert, I very much enjoyed Wes Anderson’s Asteroid City for what it was. Of course “what it was” is a wonderfully shot film with all the depth of a puddle, which Robert pastiches marvellously here.

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