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Chancellor Jeremy Hunt has ruled out major tax cuts ahead of an election this autumn, warning he must “double down” on inflation and not “pump billions of pounds of extra demand” into the UK economy.
“We won’t face tax cuts if they tighten the fight against inflation,” Hunt told the Financial Times, adding that meeting Prime Minister Rishi Sunak’s pledge to halve inflation by the end of the year “will be more challenging than we thought.” “
Vowing to resist “inflationary” public sector pay demands, Hunt also applied fresh pressure on companies, saying they must hold down prices and have “moral responsibilities to their own customers at the cost of a living emergency”.
“There are times when margin reconstruction is legitimate and times when you need to think about the impact on your own customers,” he said.
The chancellor was speaking ahead of his annual speech in the City of London on Monday, when he will set out “mansion house reforms” to encourage billions of pounds of pension savings to move into fast-growing companies and make listings in London more attractive.
Hunt will welcome a compact by leading pension firms to put 5 per cent of their investment into high-growth businesses – up to £50bn – but will also propose regulatory reforms and threaten to intervene if inefficient smaller pension firms do not merge.
FTSE 100 groups Aviva, Legal & General and Phoenix Group are among those set to take part in the compact organized by the City of London Corporation, people with knowledge of the plans said.
Aviva declined to comment about the compact, while Phoenix would not confirm its partnership. L&G did not respond.
The Chancellor will reassure the City that he wants to work with pension companies rather than telling them what to do.
Hunt’s Mansion House speech aimed to push for stronger economic growth in the future, but he and Sunak focused on the immediate task of taming rising prices: UK inflation was 8.7 percent in May, higher than comparable countries.
“We are redoubling our efforts to tackle inflation because we both believe – to the last drop of DNA – that long-term sustainable growth is not possible in a high-inflation economy,” he said.
Some Tory MPs are calling for tax cuts in the chancellor’s autumn statement, but Hunt said: “If we put billions of pounds of extra demand on the economy when inflation is already very high, it will mean fiscal policy working against fiscal policy. “
Asked if he was prepared to take political criticism if he continued to prioritize fiscal austerity over tax cuts, Hunt said: “We’re already taking political criticism on that, but it’s worth doing.”
Hunt suggested that his commitment to a tight rein on the purse strings would prevent him from accepting public sector pay rises of more than 6 per cent, which are likely to be recommended by independent review bodies, unless they are funded from the existing Whitehall budget.
“We will not resolve these public sector pay disputes with any inflationary measures,” he said.
He added that if the pay deal is funded in a way that puts extra demand in an overheating economy “that only makes the fight against inflation harder”. A stand-off over public sector wages could lead to strikes through the autumn.
Hunt’s speech will set out “evolutionary” changes to City regulations, aimed at providing higher returns for investors, improving research facilities and simplifying the rules for buying and selling shares.
Three “golden rules” will drive reform: to get the best possible outcome for pension savers, to strengthen the UK’s position as a leading financial center and to prioritize a “robust and diversified gilt market”.
Hunt will also outline a plan 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 will also be a “new type of stock market” in the form of an “intermittent trading venue” that will allow private companies to buy and sell their shares on the exchange on specific days without the need for listing.
Additional reporting by Josephine Cumbo