How the timing of the election could be crucial to a Tory victory
Szu Ping Chan
7 min read
Rishi Sunak
Rishi Sunak faces a tough crowd in Manchester. The Prime Minister will be greeted by a Tory faithful at the party’s annual conference who saw him as their second choice for leader.
He may have an extra spring in his step after official data showed the UK economy recovered more quickly after lockdown, but many analysts still believe the UK is headed for a recession that will provide a gloomy pre-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 at the traditional end-of-conference karaoke bash.
Liz Truss’s choice of song? A rendition of Shaggy’s “It wasn’t me”, Sunak said.
Jeremy Hunt has done his best to play down slashing taxes before inflation – which currently stands at 6.7pc – falls closer to the Bank of England’s 2pc target.
He recently said any near-term tax cuts were “virtually impossible”. But prudence doesn’t win elections.
Former chancellor George Osborne said last week that his pledge in 2007 at Tory conference that only millionaires will pay inheritance tax had an “electric effect” that “hung over us for years afterwards, and it still hangs over the Tory party today”.
“[People want to know] where’s the next big promise like that we can deliver at a party conference that changes politics and polls in the way that it did,” he said.
The Conservative Growth Group of around 60 Tory MPs, which successfully campaigned to abolish what it dubbed the doctors’ tax – or limits on the lifetime allowance on how much can be saved tax free in pensions – is now calling on Hunt to get rid of death taxes too.
One member says: “We are looking for that to be locked down at conference and for action.
“The Government seems to be moving in our direction but we need policies in the autumn because we need to build faith ahead of the spring.”
Under his watch, the average household will be forced to hand over £3,500 more a year in tax by the next election.
Sunak’s decision to freeze the levels at which people start to pay income tax and the higher rate alone are the equivalent to a 4p increase in the basic rate, according to the Office for Budget Responsibility (OBR).
This suggests any cuts will only offer partial redemption for Sunak, who has previously pledged to cut the basic rate of income tax 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 just be “handing back the extra taxes he’s taken in”.
“My guess is that any extra revenues from taxes will be more than wiped out by higher debt interest,” he says.
Even in March, the OBR was expecting debt interest spending to hit 4.5pc of GDP in 2022-23, which is more than double the 2pc spent in the previous year and the highest since immediately following the Second World War.
The rise in the Bank of England base rate from 4pc in March to 5.25pc today, plus jitters about the Bank’s ability to control inflation, has left Britain facing an extra £20bn a year in debt interest that will keep servicing costs above £100bn by the end of the decade. That’s bigger than the entire education budget.
With little headroom to cut taxes, Hunt is now concentrating on how to shrink the size of the state, which ballooned to more than 50pc of the economy during Covid and is expected to settle at around 43.4pc, its highest sustained level since the 1970s.
His conference speech will focus on how the Tories will ensure public spending stops growing faster than the economy.
Recent OBR projections suggest that from the end of this decade, the UK economy is expected to expand 1.6pc a year, while public spending – even excluding debt interest – is expected to grow by 2pc a year. Simple maths suggests that is unsustainable.
There are also questions about how important corporate Britain is to the prime minister, with businesses left to shoulder much of the burden of higher taxes.
A sector that craves stability was recently blindsided by Sunak’s decision to push back net zero targets to ban new cars with petrol or diesel engines from sale from 2030 to 2035. He also significantly weakened the plan to phase out the installation of gas boilers.
Rain Newton-Smith, director general of the Confederation of British Industry (CBI), says businesses were “disappointed” by the announcements. “They’re just concerned about the signals that it sends. What you say as well as the policies that sit behind it, really matter.
“As one business leader said to me: ‘If the Government sets the goalposts, we can innovate around it. But if the goalposts keep moving, we don’t know where we stand.”
Newton-Smith says the risk now is that Britain will lose out on vital investment just as other countries are increasing efforts to attract it.
“We will lose investment if we’re not clear on what we’re trying to achieve and if we see more of this shifting of goalposts.”
The CBI, which is dealing with its own financial turmoil, will be promoting its Autumn Statement submission at both Labour and Tory party conferences where it will call for business tax breaks to be made permanent and more policies to address Britain’s skills shortages.
But with Sunak’s narrow by-election victory in Uxbridge and South Ruislip in July driving the Government’s plans on net zero, keeping business happy is unlikely to be top of Sunak’s list. He won because the Tories fought an anti-ULEZ campaign.
“The by-election result showed if we take on the anti-car coalition we can win,” says one former Cabinet minister. Ditching parts of the unpopular and increasingly expensive HS2 rail line has also been mooted, with some suggesting that further delays to the project could give Hunt more room for manoeuvre to cut taxes.
Paul Hollingsworth, chief European economist at BNP Paribas, says Britain’s economic performance is not something to boast about. “If our forecasts are right, which sees the UK fresh out of a recession, you probably don’t want to make the economy front and centre of your campaign, right?”
Timing will also be important. Ten of the past 14 general elections have taken place in either May or June, and there are some suggestions that Sunak is leaning towards a spring vote that is tied to local elections.
But John Redwood, who ran Margaret Thatcher’s policy unit, believes a later election will give Sunak the best chance of victory.
“It must be late autumn next year, not early in 2024, because it’s more likely we’ll see better growth and more healthy public finances later in the year.
“People need to see inflation much lower than it is today. My message to the Chancellor is to cut taxes now and let them bear fruit because yes we need to bring prices down, but we simply cannot ignore economic growth.”
