Boris Johnson will on Thursday declare that boosting Britain’s economic growth rate is his top priority, as he attempts to create a platform for the income tax cuts that restive Tory MPs and ministers are demanding.
The prime minister, rocked by a large scale rebellion by Conservative MPs, will use a speech in Blackpool to insist he has a plan for “generational investments in infrastructure, skills and technology”.
Johnson was cheered on Wednesday by Tories when he told them at question time in the House of Commons that although he had had a long political career, it had “barely begun”.
He said “absolutely nothing and no one” would stop him carrying on and delivering on his agenda, after more than 40 per cent of Conservative MPs refused to back him in a no-confidence vote on Monday following the partygate scandal. He won the vote, but was badly damaged by the rebellion.
Johnson, who has been consulting independent economists on his growth strategy, has vowed to start cutting personal taxes but Number 10 said it would only happen when it was “fiscally responsible”.
Chancellor Rishi Sunak reinforced that message on Wednesday in a meeting with backbench Tory MPs, saying he wanted to reduce income tax as much as any of them but that they had to be paid for.
Johnson knows that cutting income tax is the single issue most likely to help him rebuild support among Conservatives, but Sunak has warned of the dangers of pouring fuel on an inflationary fire.
Johnson is also said by his advisers to be genuinely worried about the government making the inflationary situation worse. “Well, he’s worried to the extent it impacts on his premiership,” said one.
For now both Johnson and Sunak are focused on measures to boost Britain’s sluggish growth rate and cutting bureaucracy to create some fiscal space for tax cuts.
“With more affordable energy, childcare, transport and housing we will protect households, boost productivity and — above all — increase the rate of growth of the UK,” Johnson will say in his speech.
It will be followed in the coming weeks by another set-piece speech on the economy, intended to show Johnson has a long-term vision for how to make Britain richer.
“The Treasury always gets worried when the prime minister makes a speech on the economy,” said one former government official.
But Number 10 insists the prime minister and Sunak agree that personal tax cuts cannot be funded by more borrowing and that the initial focus must be on creating a better climate for private sector investment.
The prime minister’s speech on the economy is expected to repeat Sunak’s plan to reform the business tax regime — including investment allowances, research and development tax credits and the apprenticeship levy.
However Sunak’s allies have rejected the idea that the chancellor intends to reverse a planned increase in corporation tax, from 19 per cent to 25 per cent, slated for April 2023.
More generous tax breaks for investment in capital, innovation and people are expected to be at the heart of Sunak’s autumn Budget. He will also be under pressure to bring forward a planned 1 percentage point cut in income tax, currently earmarked for 2024.
The idea of an economic speech by Johnson was suggested by Lord Mervyn King, former Bank of England governor, in a meeting with the prime minister, according to people briefed on the conversation.
“Mervyn said the prime minister had to write it down and read it word for word,” said one person. “Boris asked if he could make any amusing asides and Mervyn said sternly ‘No’.”
The prime minister last month summoned four economists to Downing Street: Lord King, Rupert Harrison, who served as an adviser to former chancellor George Osborne, Gerard Lyons, who advised Johnson when he was London mayor, and Minouche Shafik, director of the London School of Economics.
Johnson was told it was impossible to meet all of the desires of Conservative MPs for strong public finances, tax cuts, higher living standards and low borrowing costs, according to one person with knowledge of the meeting.
The prime minister was urged to level with Britons, and tell them that Russia’s invasion of Ukraine meant “there was no way of avoiding” lower living standards, said this person. Job losses were inevitable if inflation was to be controlled.
Lyons, chief economic strategist at Netwealth, told the Financial Times the UK “needed to have tighter monetary policy, looser fiscal policy, to address the clear downside risks to the economy”.