Jeremy Hunt has warned that high inflation in the UK will prevent pre-election tax cuts this autumn, amid signals that the Bank of England will raise interest rates again to ease cost of living pressures.
Hunt last month played down the prospect of pre-election tax cuts despite news that the public finances were in better shape than the Government's spending watchdog had forecast in the Spring Budget.
Stronger tax receipts from an economy that has so far avoided recession meant the UK's budget deficit stood at £4.3bn in July - the fifth highest for that month since modern records began in 1993 but £1.7bn below the estimate from the Office for Budget Responsibility.
In an interview with Bloomberg TV on Monday (11 September), the Chancellor said he was wary about putting "extra money into people's pockets" as that could "pump extra money into the economy" and push up prices, keeping inflation higher for longer.
He added money would be tight in any event because of higher inflation and the impact of rising interest rates on the Government's debt interest payments.
All eyes on the budget
On 22 November, Hunt is due to outline fiscal and tax plans to Parliament, which he said would focus on "bringing down inflation and delivering the Prime Minister's goal to halve inflation and the Bank of England's target to get it down to 2%".
The Chancellor is expected to borrow around £132bn this year and almost £100bn next financial year, according to private sector economists surveyed by the Treasury.
Far from cutting taxes, the Chancellor warned that spending pressures could instead force the Government to increase the burden on businesses and households.
He said: "If we don't change course, we are going to see taxes going up."
Currently, the tax burden is at an all-time high and is only set to rise further. The Office for Budget Responsibility in March predicted the tax take would rise to 37.7% of GDP by 2027/28, the highest share since the Second World War.
Interest rates continue to increase
The Chancellor's comments came as Catherine Mann, one of the nine members of the Bank's rate-setting monetary policy committee (MPC), said she was prepared to raise interest rates too far, rather than risk not increasing them enough and allowing inflation to become "more deeply embedded".
Mann has tended to support tighter monetary policy of the MPC since it started to raise interest rates from the record low of 0.1% in December 2021.
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