London Daily

Focus on the big picture.
Friday, Jul 24, 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
Badenoch Rejects Grant Shapps' Bid to Return as Conservative Candidate
BAE Chief Warns Britain Has Underestimated the Risk of War
Burnham Rules Out New Scottish Independence Referendum in First Talks With Swinney
UK Government Strengthens Northern Economic Agenda Through Manchester Headquarters and Regional Partnerships
United Kingdom Opens New Furness Peninsula Coastal Route Under King Charles the Third England Coast Path
England Reduces Business Costs for Hospitality Sector Through New Relief Package
United Kingdom Allocates Seven Point Three Million Pounds for Zero-Emission Aviation Research
United Kingdom Begins Restoration Works on Portishead Railway Line After Six Decades Without Passenger Services
United States Tariff Measures Create New Trade Challenges for United Kingdom and European Union Businesses
Prime Minister Andy Burnham Meets Scottish and Welsh Leaders to Promote Regional Growth Cooperation
United Kingdom Government Announces Twenty Percent Business Rates Cut for Pubs, Clubs, and Music Venues
Prime Minister Andy Burnham Opens Manchester Government Headquarters to Shift Decision-Making Away From Westminster
United Kingdom Defence Ministry Says Armed Forces Ready After Iran Accuses London Over US Military Strikes
United Kingdom Inflation Falls to Two Point Six Percent as Prime Minister Andy Burnham Gains Economic Breathing Room
OpenAI Sued After ChatGPT Allegedly Discouraged Emergency Care Before Near-Fatal Embolism
Viral Video Raises Questions Over Twelve-Dollar Croissants at Manhattan Bakery
UK Balances Security Commitments With Economic Growth Priorities
Retail and Hospitality Sectors Navigate Consumer Caution and Tax Changes
Key Trends to Watch
British Land Appoints Joanne McNamara as New Chief Executive Officer
UK Government Names New Life Peers Including Former Military and Civil Service Leaders
Institute of Directors Urges Government Action on Employment Costs and Skills Shortages
IMF Raises UK 2026 Growth Forecast to One Percent
UK Retail Sales Growth Slows Sharply as Households Cut Discretionary Spending
UK Ten-Year Bond Yields Remain Above Five Percent as Government Faces Higher Debt Costs
UK Government Plans Earlier End to Low-Value Import Duty Exemption for Online Retail Parcels
Reform UK Leads Tight Westminster Voting Poll as Conservatives and Labour Remain Close
Royal Navy Carrier Strike Group Completes First Arctic and North Atlantic Mission Phase
Andy Burnham Government Cuts Business Rates for Pubs and Music Venues by Twenty Percent
UK Inflation Falls to Two Point Six Percent in June as Food and Fuel Prices Ease
Andy Burnham Becomes UK Prime Minister Facing Growth Challenges and Fiscal Pressure
UK Government Reviews Long-Term Balance Between Cost Relief, Industry Support, and Public Investment Priorities
BBC Could Receive Permanent Royal Charter Under Government Proposal
Northern Ireland Proposes End to Severe Weather Exemptions for Electricity Compensation Rules
Andy Burnham Holds Talks With UK Devolved Leaders on Regional Cooperation and Devolution
House of Lords Launches Inquiry Into Risks Facing UK Democratic Institutions
ScottishPower Renewables Plans Major Rebuild of Whitelee Wind Farm With Fewer Larger Turbines
UK and Italy Leaders Discuss Global Combat Air Programme and Future European Cooperation
UK Government Announces Six Hundred Million Pound Aerospace Investment Package at Farnborough Airshow
European Union Approves UK Participation in Ninety Billion Euro Ukraine Support Loan Framework
Rolls-Royce Warns UK Government Over Jet Engine Funding Decision and Future Manufacturing Plans
UK Inflation Falls to Two Point Six Percent in June as Fuel and Food Prices Ease
Andy Burnham Begins Premiership With Two Pound England Bus Fare Cap and Electricity Tax Cut Plan
YouGov Poll Shows Tight Competition Among UK Political Parties
Space Technology Investment Expands Through UK-US Cooperation at Farnborough Airshow
UK Opens Final India Young Professionals Scheme Ballot for Three Thousand Applicants
United Kingdom Approved for Ukraine Financial Support Initiative With EU Partners
UK and Ireland Leaders Discuss Security, Energy and Regional Cooperation
British Heart Foundation Identifies Ten UK Areas With Severe Shortages of Defibrillators
Former Southern Water Executives Charged Over Alleged Water Test Manipulation Scheme
×