Chancellor Jeremy Hunt hit back at accusations that the tax cuts announced in the Autumn Statement last week will mean sharp spending cuts to public services after the next election.
Hunt told MPs on the influential Treasury Committee that the cuts contained in the Autumn Statement are “designed to help growth,” which in turn will help fund public services.
“The way that we fund our public services over the medium is by having a healthy growing economy,” he said.
The comments came after MPs suggested Hunt’s plans were based on a “fiscal fiction,” in which he had banked larger than expected tax receipts from higher inflation now without taking into account the impact of inflation on government spending in years to come.
“It would be fiscal fiction if I chose to cut taxes in areas that didn’t impact growth. But I didn’t,” he argued.
Among the measures announced last week, Hunt made permanent the full expensing of capital investment, in what he described as the “largest business tax cut in modern British history“.
The Chancellor also announced a surprise cut in the rate of employee national insurance by two per cent, from 12 per cent to 10 per cent, as well as a shakeup of taxes for the self-employed.
Hunt pointed out that, according to estimates from the Office for Budget Responsibility (OBR), the measures announced in both the Spring Budget and the Autumn Statement will help to increase GDP by 0.5 per cent.
But MPs were also alarmed by the Treasury’s current proposals to freeze public sector capital investment in cash terms, arguing that it would prevent the UK from growing more quickly and discourage private investment.
“You’ve signalled to the private sector just as you want them to invest more…that you’re not going to put your money where your mouth is in terms of public sector investment,” Dame Angela Eagle said.
Hunt rejected this, suggesting the private sector have said the investment reliefs were “a game changer”.
“Increasing the incentives for businesses to invest makes a massive difference in the long turn for the ability of the economy to generate wealth and pay for our public services,” he said.
However, speaking in a Treasury Committee hearing yesterday, Torsten Bell pointed out that the fall in capital investment from the spending freezes more than offsets “any plausible increase” gained from the full expensing policy.