Sunak preparing the ground for taxes rises ahead

By Gareth Jones,
Newgate Public Affairs

The return of Parliament this week has seen the issue of tax appear at the top of the political agenda. To many observers, it is not immediately obvious why this is the case. Firstly, it is not as if the government and politicians are short of other things to talk about – the return of schools, rollout of testing, local lockdowns and Brexit negotiations are all urgent and important issues for policymakers to focus on. Secondly, the Autumn Budget is several weeks away (October at the earliest) and the government does not typically pre-brief tax changes this far in advance of any budget statement. Yet despite all this, the media this week has been full of speculation about the tax raising options considered by the Chancellor in order to address rising public borrowing costs driven by the pandemic and its effect on the economy. This media speculation was underlined yesterday by a meeting held by the Chancellor and the Prime Minister with backbench Conservative MPs, in which the issue of taxes and public finances were discussed.

What is perhaps even more remarkable, is some of these mooted tax rises are considered highly controversial in traditional Conservative Party circles, given their impact on higher earners and business. These include corporation tax and capital gains tax rises. Speculation has also centred on increases in national insurance for the self-employed, petrol duties and ending the pensions triple-lock (not strictly speaking a tax rise – but a measure which will impact a key demographic for the Party).

So why are these headlines appearing now? Some have suggested that they’re being been driven by briefings from different factions within government who are keen to mobilise the party for or against a particular tax proposal -- and to discredit their political rivals.  It is not unknown for Downing Street and HM Treasury to brief against each other (it was, after all, a common occurrence under Blair and Brown) and the recent media stories over the international aid budget being cut (shortly before being officially denied by the Foreign Office) is probably an example of Machiavellian briefing from HM Treasury.

However, it appears that the more likely explanation for the majority of the news stories is that the Chancellor, and the wider government, need to prepare the ground and set expectations among Party colleagues and the wider public for difficult decisions ahead. By raising a range of tax options now, it is hoped that when they arrive, the backlash will be not be too severe. Opposition has already been voiced from backbenchers, centre-right think tanks and the Labour Party (Keir Starmer said yesterday that now “absolutely the wrong time to be talking about tax rises”). Sunak, however, will want to stress the importance of the government demonstrating fiscal responsibility and that borrowing will be under control by the next election. Notably, in his meeting with backbench MPs yesterday, he said "If we argue instead that there is no limit to what we can spend, that we can simply borrow our way out of any hole, then what is the difference between us and the Labour Party”.

Rishi Sunak’s political ascent during the course of the pandemic has been remarkable. He has risen to become – according to pollsters such as YouGov and Ipsos Mori – the highest rated UK politician in terms of net favourability. This is, in part, down to his slick communications skills and skilful personal branding. But it is also largely down to the fact that his key interventions, so far, have involved giving away lots of money.  He knows however, that his days as the giveaway Chancellor are coming to an end – and being able to navigate this change will be his biggest challenge yet.