Hunt faces down Tory tax critics as IMF predicts UK recession

Jeremy Hunt has faced down Tory MPs demanding tax cuts in the March Budget, against a backdrop of more gloomy news about the prospects for the British economy.

The chancellor joked that he had endured a “punishing” encounter with Tory MPs at a private meeting at Westminster where some warned him not to wait until a pre-election Budget in 2024 before cutting taxes.

But Hunt insisted that halving inflation to 5 per cent by the end of the year was his priority, and warned that cutting taxes now would make that task harder.

“Jeremy doesn’t think it’s a foregone conclusion that inflation will come down that sharply,” said one ally. The chancellor repeated his view that: “The best tax cut right now is a cut in inflation.”

On Tuesday, the IMF forecast that Britain was the only leading economy likely to slide into recession this year, with a predicted contraction of 0.5 per cent.

The IMF forecast has been used by Tory MPs, and Conservative-supporting newspapers, to intensify pressure on Hunt to cut taxes immediately, a policy course that the chancellor tells colleagues he will resist.

Sir Gary Streeter, a senior backbencher, said those Tory MPs calling for tax cuts had short memories, given that Liz Truss’s shortlived government proposed £45bn of unfunded cuts in a disastrous mini-Budget last year.

“We can’t afford to cut taxes at the moment because the markets will go into meltdown again,” he said. “We have discovered that’s not a good thing.”

Around 50 Tory MPs attended the meeting with Hunt, with a number proposing tax cuts or curbs on fuel duty.

Sir Edward Leigh, MP for Gainsborough, said he had told the chancellor that it was not an option to wait until the immediate run-up to the general election to give the electorate tax cuts. There needed to be something before to give people hope, he said.

Hunt’s meeting with MPs came as a survey by the Chemical Industries Association, representing one of the country’s biggest exporting sectors, reported a sharp decline in sales in the last quarter of 2022.

Some 53 per cent of respondents to a CIA survey reported a fall in exports to the EU in the final quarter of last year, while 50 per cent experienced falling demand from the domestic and non-EU market.

“We knew we were heading for challenging times, but the extent of the contraction is worse than feared,” said Steve Elliott, the association’s chief executive.

He said the UK policy framework “kills off any incentive for manufacturing investment in our country”, citing a complexity of climate change regulations and “a far more attractive” investment climate in the US.

Meanwhile, an Ipsos poll found that 67 per cent of Britons believed that the worst of the cost of living crisis is yet to come, while only 27 per cent thought it had peaked.

Hunt’s Budget will include measures intended to bolster growth, including efforts to reduce worker inactivity, where 500,000 people have left the labour market since the start of the pandemic.

On the third anniversary of Brexit, the chancellor has also promised to create a more “agile” regulatory framework for growth sectors in the economy. Most economists say that leaving the EU has hobbled the country’s performance.