Taxes could fall if UK boosts productivity in public sector, Hunt suggests

Taxes could start falling if productivity is boosted in the public sector, Jeremy Hunt has suggested.

The Chancellor acknowledged that tackling high inflation must be the “immediate priority” in order to pave the way for increased growth.

Speaking at the Centre for Policy Studies’ (CPS) Margaret Thatcher conference on Monday, he said this should be only the “starting point” of the UK’s economic mission.

It would mean increasing tax revenues, without increasing tax rates - and it will put us on a sustainable path to lower taxes

Mr Hunt said that to keep up with projected spending pressures would mean increasing annual tax revenues by £200 billion by 2071, or doubling income tax and main rate of employee national insurance.

However, if productivity growth in the public sector increased by 0.5% a year, the “gap” between anticipated growth and anticipated spending up to 2050 would be closed, he said.

Mr Hunt told the conference: “All advanced economies face slower growth. We need to find a smarter way out of the challenge.

“Tackling inflation must be the immediate priority – but that’s the starting point, not the end point. We need growth driven by increases in productivity.

“If we replicate the productivity growth we’ve seen in the private sector and apply it to the public sector, we start to increase GDP. It would mean increasing tax revenues, without increasing tax rates – and it will put us on a sustainable path to lower taxes.”

Ministers have faced pressure from backbenchers pushing for tax breaks, with former prime minister Boris Johnson using his parting shot at Rishi Sunak to call for cuts to both business and personal levies.

But Mr Hunt has so far dashed hopes of immediate breaks by warning the “number one task” is to lower inflation.

His latest comments build on the focus of the spring budget, which included measures he said would help get young parents and over-50s back into work.

Among these were plans to expand free childcare in England and scrap the £1 million cap for tax-free pension savings.

Mr Hunt abolished the £1.07 million lifetime allowance – the total amount of tax-relieved contributions that an individual can accumulate – and increase the tax-free annual allowance from £40,000 to £60,000.

The measures will cost the Treasury more than £1.1 billion a year by 2027/28, but the independent Institute for Fiscal Studies said it would have only a limited impact on employment.

The Chancellor’s renewal of his commitment to growth comes against a backdrop of a persistent cost-of-living crisis, with overall food prices nearly 20% higher than a year ago.

The Office for National Statistics said CPI inflation fell to its lowest level for more than a year in April, at 8.7%, down from 10.1% in March, as energy prices stabilised after sky-high rises a year ago.

But it was higher than forecast by economists, who had pencilled in a drop to 8.2% in April.

Labour branded Mr Hunt’s comments an “admission of failure” from the Government.

Shadow chief secretary to the Treasury Pat McFadden said: “The Chancellor’s speech is an admission of failure from the Government.

“Finally the penny seems to have dropped for the Chancellor that economic growth has not been good enough. But over the past decade the country has been let down by a Government that has pursued failed trickle down economics instead of recognising growth comes from the efforts of all.

“Labour has been saying for some time now that the UK needed to boost its growth rate to make the country’s economy stronger and increase living standards. That’s what we aim to do and to make sure that every part of the country feels the benefits of the economic growth we secure.”