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Chancellor Jeremy Hunt has ruled out big pre-election tax cuts this autumn, warning he must “double down” on inflation and would not “pump billions of pounds of additional demand” into the UK economy.
“We will not countenance tax cuts if they make the battle against inflation harder,” Hunt told the Financial Times, admitting that meeting Prime Minister Rishi Sunak’s promise to halve inflation by the end of the year was “going to be more challenging than we thought”.
Vowing to resist “inflationary” public sector pay demands, Hunt also applied new pressure to companies, saying they should hold down prices and had “moral responsibilities to their own customers in a cost of living crisis”.
“There are times when margin rebuild is legitimate and there are times when you need to think about the impact on your own customers,” he said.
The chancellor was speaking ahead of his annual speech to the City of London on Monday, when he will set out “Mansion House reforms” to encourage billions of pounds of pensions savings to go into fast-growing companies and make listing in London more attractive.
Hunt will hail a compact by leading pensions companies to put 5 per cent of their investments into high-growth businesses — up to £50bn — but he will also propose regulatory reforms and threaten to intervene if inefficient small pension firms do not merge.
FTSE 100 groups Aviva, Legal & General and Phoenix Group are among those set to participate in the compact organised by the City of London Corporation, said people with knowledge of the plans.
Aviva declined to comment about the compact, while Phoenix would not confirm its participation. L&G did not respond.
The chancellor will reassure the City that he wants to work with pensions companies rather than telling them what to do.
Hunt’s Mansion House speech is intended to underpin stronger future economic growth, but he and Sunak are focused on the immediate task of taming rising prices: UK inflation in May was at 8.7 per cent, higher than comparable countries.
“We are doubling down on our efforts to tackle inflation because we both believe — down to the last drop of DNA — that no long-term sustainable growth is possible in an economy with high inflation,” he said.
Some Tory MPs are clamouring for tax cuts in the chancellor’s Autumn Statement, but Hunt said: “If we were to pump billions of pounds of additional demand into the economy when inflation is already too high, that would mean fiscal policy working against monetary policy.”
Asked if he was willing to take the political criticism if he continued to prioritise fiscal rigour over tax cuts, Hunt said: “We are already taking political flak on that, but it’s the right thing to do.”
Hunt suggested his commitment to keeping a tight rein on the purse strings would prevent him accepting more than 6 per cent public sector pay increases, which are likely to be recommended by independent review bodies, unless they were financed out of existing Whitehall budgets.
“We will not resolve these public sector pay disputes with any measures that are inflationary,” he said.
He added if pay deals were funded in a way that put extra demand into an overheating economy “that only makes the battle against inflation harder”. The stand-off over public sector pay could lead to strikes stretching into the autumn.
Hunt’s speech will set out “evolutionary” changes to City regulations, intended to deliver higher returns for investors, improve research facilities, and simplify rules for buying and selling shares.
Three “golden rules” will underpin the reforms: to get the best possible outcome for pension savers, to strengthen the UK’s position as a leading financial centre and to prioritise “a strong and diversified gilt market”.
Hunt will also outline plans to reform London’s capital markets, simplifying the rule book and using “Brexit freedoms” to make it “easier than ever for firms to research, raise funds, and float their businesses”.
The Treasury said it would simplify the prospectuses that companies must produce for investors. There would also be a “new kind of stock market” in the form of an “intermittent trading venue” that would allow private companies to have their shares bought and sold on an exchange on specific days without the need for a listing.
Additional reporting by Josephine Cumbo
