Jeremy Hunt faces red wall revolt if he delivers ‘a budget for the rich’

Jeremy Hunt faces a backlash from “red wall” Tory MPs if he uses a fiscal windfall of up to £20bn to deliver tax cuts for the rich rather than to help ordinary families with the cost of living, the Observer has been told.

The chancellor and Rishi Sunak are this weekend finalising an autumn statement on Wednesday that could include a major reduction in inheritance tax – four-fifths of which would benefit those with more than £1m at their death, according to a new report from the Institute for Fiscal Studies (IFS). Each person with more than £1m would receive an average tax cut of £180,000, the IFS states.

After another torrid week for Sunak, in which he sacked Suella Braverman as home secretary and saw the government’s policy of sending asylum seekers to Rwanda declared illegal by the supreme court, he and Hunt are determined to seize the opportunity of Wednesday’s statement to turn the political tide, finally, in the Tories’ favour.

On Saturday night, it emerged, however, that Hunt may at the 11th hour be considering cutting income tax – possibly by unfreezing thresholds – or national insurance, in ways that could benefit people across the income scale. Such a move would have to be limited because of a lack of fiscal headroom and because the markets would react with alarm to any suggestions that the Tories had failed to learn the lessons of Liz Truss’s prime ministership and were risking a fresh surge in inflation.

Last week’s news that inflation had fallen to 4.6% in the year to October, down from 6.7% the month before, has rekindled some optimism among ministers and Conservative MPs that the economy may be on the mend.

But there is already unease among those in vulnerable red wall areas in the Midlands and north of England at growing suggestions that Hunt is considering spending billions on an inheritance tax cut – only paid by less than 4% of the most valuable estates.

The IFS findings show that gains from an inheritance tax cut would be concentrated on the top 5% of estates and predominantly in London and the south-east.

In what is expected to be a highly political autumn statement, almost certainly the last before a general election, Hunt is also considering another highly controversial move – cutting the welfare bill by altering how it is calculated, saving the Treasury about £1.3bn.

The move would hit the incomes of 9 million families. Some would lose as much as £500 a year, according to new analysis by the Resolution Foundation thinktank.

John Stevenson, chair of the Northern Research Group of Tory MPs, representing 30 to 40 members in red wall seats, said: “I am all for reforming tax and inheritance tax needs reforming. However at this time any tax cuts should be aimed at helping businesses or the lower paid.”

Jonathan Gullis, a former minister and the MP for Stoke-on-Trent North, said: “While long term this [inheritance tax] should be eventually abolished, now is not the right time for this tax cut.

“Instead, we should be looking at cutting the basic rate of income tax [and] increasing the 40p tax threshold to help families really feeling the pinch.” He added that Hunt should “go for growth” by increasing tax breaks for small businesses and the self-employed.

Another former government minister from a red wall seat said what was needed were cuts in “personal taxation that will help put money in people’s pockets to address cost of living pressures” rather than help for the most wealthy.

The latest Opinium poll for the Observer puts Labour on 40% – down 3 points in the last week – but still 13 points ahead of the Tories, who are up 1 point on 27%.

The shock appointment last week by Sunak of David Cameron as foreign secretary has not gone down well, however. Just 31% of voters think it was the right decision, while 41% say it was wrong. It has also split Tory voters, with 41% of those who backed the party at the 2019 election supporting the move and 41% opposing it.

Despite the fall in inflation, the polling finds that 88% of people think the cost of living has gone up in the last 12 months, with 65% saying it has increased a lot.

Hunt is now thought to have between £13bn and £20bn more than anticipated, much of which has come from higher than expected tax receipts from VAT and income tax.

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The chancellor is bound to face strong criticism if he imposes effective cuts to working-age benefits, while also slashing inheritance tax.

Benefits are normally increased in April by the rate of inflation from the September. But the chancellor is understood to be looking at using a lower inflation figure to calculate this year’s increase.

He could even use the lower 4.6% figure recorded in October – the biggest monthly fall in more than 30 years, that was announced last week. Disability benefits are expected to be excluded from the move.

The average annual income loss for families affected by this benefit cut would be £142, though many low-income families in work would face far larger losses. A typical working family with two children and rental costs would lose about £380 next year, while a working family with three children could lose about £500.

On Saturday night, there were also reports that the chancellor may, however, be considering ending the three-year freeze on housing benefit, in a move to help people in the rented sector.

Insiders said that Hunt had been minded to delay any major tax cuts until the spring budget. But he has been persuaded to consider them now with the party trailing in the polls and after recent attempts by Sunak to reset his prime ministership with new initiatives have failed.

Elsewhere, Hunt is said to be most keen on the pro-business measure of making the “full expensing” scheme permanent. The system, currently set to expire in 2026, allows companies to reduce tax on their profits by investing in new tech and machinery.

Senior Labour figures, including four ex-work and pensions secretaries, have already written to the chancellor urging him to back away from a fresh raid on the benefits budget.

“We believe that the social security system should provide the vital safety net it was set up for in the postwar settlement,” write the group, which includes Alan Johnson, David Blunkett, Andy Burnham and Labour MP Debbie Abrahams. “Some may argue that inflation will decrease over the next few months, but this ignores the real term cuts in working age social security support since 2011.”


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