London Daily

Focus on the big picture.
Thursday, Jul 09, 2026

Rishi Sunak offers spending now – and signals tax cuts later

Analysis: Economic growth enables budget giveaways, but chancellor’s plans could go off course
Up until the last few minutes of his third budget it was hard to distinguish Rishi Sunak from Gordon Brown in his pomp. The hour-long address was peppered with spending pledges on everything from schools to prisons, from theatre refurbishment to community football pitches.

Then, as the peroration approached, the real Sunak emerged as he launched into a statement of his belief in a Britain where taxes are lower and the state is smaller. The chancellor could hardly have been clearer: he intends to get taxes down before the next general election.

This channelling of Sunak’s inner Nigel Lawson was given substance by one of the few measures not trailed in advance: the decision to reduce the taper rate for the withdrawal of universal credit from 63% to 55%, which will allow low-paid workers to keep more of what they earn before their benefits are cut.

While it only gave back a third of the money raised, this was a tacit admission that the decision to scrap the £20 a week increase in UC announced at the start of the pandemic was a mistake. It was also intended to show the government’s planned direction of travel.

Sunak felt the need to provide his colleagues with some reassurance that the spirit of Margaret Thatcher was alive and well in the Conservative party because – as the Office for Budget Responsibility noted – his two budgets this year have raised taxes by more than any chancellor since the two Norman Lamont and Ken Clarke budgets in 1993.

To be sure, there were tax cuts in the budget – the crowd-pleasing cuts in alcohol duties, the customary freezing of fuel duties for motorists, and a business rate discount for the hospitality, retail and leisure sectors among them.

But these followed two whopping increases in taxes already announced: the post-dated increase in corporation tax in March and the rise in national insurance contributions (NICs) announced in September.

The OBR says the result is that taxes as a share of national output are the highest since the end of Clement Attlee’s premiership in the early 1950s while spending is back to levels last seen in the late 1970s.

Sunak is able to offer more spending now while promising tax cuts later because the economy is doing better than the OBR envisaged in the spring. Growth is higher and – crucially as far as the public finances are concerned – the OBR’s estimate of the amount of long-term damage to the economy caused by the pandemic has been reduced from 3% to 2% of gross domestic product.

Add in the money raised from NICs and the chancellor had about £50bn of resources to deploy in this budget. Of this, the chancellor spent about £30bn – giving more money to the NHS and Whitehall departments – and banked the rest. The OBR estimates that he can meet his fiscal rules – to have debt falling as a share of national income and to avoid borrowing for day to day government spending – with up to £25bn to spare.

The Treasury says a prudent approach is needed, because every one percentage point on inflation and interest rates adds $25bn a year to the cost of servicing the government’s £2tn-plus debt. It also says the lesson from history is that most recessions cause scarring of more than 2% of GDP.

What could go wrong? Well, apart from a new wave of the pandemic, the risk is that the economy slows and inflation picks up. Sunak was bullish about the economy’s prospects but the OBR said growth was slowing and inflation would hit 4.4% next year. Even a mild dose of stagflation would blow the chancellor off his tax-cutting course.
Newsletter

Related Articles

0:00
0:00
Close
Rare Early Copy of US Declaration of Independence Found in British Archive
Cornish Language Revival Gains Momentum Through Schools and Community Programs
UK Authorities Face Criticism Over Prisoner Early Release Safeguards
Clacton By-Election Set After Nigel Farage Resigns Seat to Trigger Contest
Government Agencies Review Long-Term Fiscal Risks from Aging Population and Low Productivity
UK Heatwaves Expose Pressure on Public Transport and Housing Infrastructure
UK Government Prepares Welfare Review Amid Debate Over Personal Independence Payment Reform
UK Government Expands Rapid Endometriosis Testing Across NHS Services
Vistry Group Issues Profit Warning as UK Housing Market Faces Continued Pressure
Virgin Media Receives Record Twenty-Eight Million Pound Fine Over Contract Cancellation Failures
Office for Budget Responsibility Warns UK Public Finances Face Long-Term Pressure
UK Watchdog Warns Regional Income Gap Has Barely Narrowed in Three Decades
IMF Raises United Kingdom Growth Forecast as Inflation and Energy Pressures Ease
UK Government Launches Regulatory Reform Bill to Speed Up Commercialization of Innovation
Prince Harry Loses Privacy Lawsuit Against Daily Mail Publisher After High Court Rejects Claims
Federal Financial Framework Shifts as Treasury Launches Universal Savings Program for Minors
Jet2 Reports Strong Summer Travel Demand as Bookings Rise Seven Percent
Prince Harry Loses High Court Privacy Case Against Daily Mail Publisher
British Universities Warn Against Potential European Union Tuition Fee Changes
Heal Fertility Clinic Investigated After Embryo Biopsy Sample Mix-Up
Resolution Foundation Warns Regional Income Divide Has Barely Improved Since 1997
British Markets Remain Cautious as Middle East Tensions Rise and Government Transition Nears
Andy Burnham Poised to Become United Kingdom Prime Minister in Expected Political Transition
Nigel Farage Resigns as Member of Parliament Ahead of By-Election Amid Funding Investigation
Trump Declares Iran Ceasefire Over After Renewed Attacks on United States Bases
French Court Allows Le Pen to Run for Presidency, but with an Electronic Tag: "I Will Appeal, and I Will Run"
$1.4 Trillion: The Lawsuit That Could Crush Meta
Europe's Growing Struggle with Extreme Heat and Air Conditioning
UK Daily Briefing: Legal Developments and Social Issues
Political Turmoil and Rising Costs
Anthropic Reengineers Agentic Architecture to Shift Autonomous Workplace Automation to the Cloud
Logic Flaw in Windows 11 Permission Architecture Silently Consumes Hundreds of Gigabytes of Local Storage
Apple Advances Late-Stage Operating Systems with Fourth Beta Deployments
Global Crisis Alert: Escalating Middle East Tensions and UK Political Upheaval
UK Parliament Pushes for Greater Domestic Control Over Critical Technologies
UK Parliament Warns Trade Fair and Exhibition Industry Is Losing Global Competitiveness
Police Launch Murder Investigation After Mother and Two Children Found Dead Near Bedford
British Chambers of Commerce Survey Shows Business Confidence Falls to Post-Pandemic Low
UK Parliament Report Warns Britain Risks Falling Behind in Artificial Intelligence Sovereignty
Office for Budget Responsibility Warns United Kingdom Faces Long-Term Fiscal Pressures
Nigel Farage Resigns as Member of Parliament Amid Financial Scrutiny and Triggers By-Election
Deep Purple Has Released Its Best Album in Decades
UK MPs Criticise Student Loan System as Potentially Mis-Sold to Millions of Borrowers
Policy Groups Propose Bank of England-Backed Solar Loan Scheme for Millions of Homes
UK Health Agency Issues Amber Heat Alerts Across Six Regions as Temperatures Rise
Royal Air Force F-35 Jets Conduct First High North Air Policing Missions From Aircraft Carrier
Major UK Companies Join Government Cybersecurity Pledge Amid Rising Digital Threats
UK Sanctions Russian Operatives Linked to Chemical Weapons Programmes and Poisoning Cases
UK Government Expands Free Breakfast Clubs and Limits School Uniform Costs
UK Water Companies Face Tougher Penalties Under New Environmental Enforcement Rules
×