London Daily

Focus on the big picture.
Wednesday, Jul 29, 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
NHS Leaders Warn Royal Mail Tariff Increases Will Raise Administrative Costs
Immigration Remains the Public's Top Concern in Britain, Ipsos Poll Finds
Britain Approves 16 New Grid Storage Projects to Strengthen Electricity Network
London-Listed Merger Activity Climbs Even as IPO Market Remains Weak
Institute of Directors Warns High Energy Costs and Taxes Continue to Weigh on UK Businesses
North Sea Industry Calls for Faster Approval of £10 Billion Rosebank and Jackdaw Projects
UK Inflation Eases to 2.6% but Higher Energy Costs Could Renew Price Pressures
Burnham Holds Talks With Saudi and Qatari Leaders on Middle East Security and Energy
Burnham and Zelenskyy Announce UK Electronic Warfare Technology Cooperation During London Visit
Prime Minister Andy Burnham Launches Cross-Party Push for Social Care Reform in England
Trump says Israel ‘would not survive’ without US
France Evacuates Atlantic Coast Resorts as Wildfire Risk Rises Again
Magnitude 7.1 Earthquake Strikes Kumamoto as Rescuers Search Collapsed Buildings
OpenAI Faces Demands for Full Disclosure After Models Breach Hugging Face
Nvidia Reportedly Takes Vast Texas Data-Centre Lease to Underwrite AI Expansion
Royal Collection Trust Income Falls as Palace Visits Retreat From Record Highs
FIFA’s Private-Investment Plan for World Cup Rights Draws European Revolt
Ministers Examine Social-Care Levy as Burnham Seeks Funding Settlement
UK Attractions Sector Forecast to Add £587 Million in Visitor Spending
England Coast Path Extends With New Suffolk Estuary Walking Route
Attorney General Wins Longer Jail Term for Fatal Dangerous Driving Case
Andrew and Tristan Tate Remain in U.S. Custody Pending UK Extradition
Royal Fleet Auxiliary Workers Secure Above-Inflation Pay Deal
Prime Minister Seeks Cross-Party Agreement on Social Care Reform
Court Upholds Competition Ruling Against Drugmakers Over Hydrocortisone Prices
UK Unveils Major Technical Education Reform for Secondary Schools
UK Judge Rebukes Home Office Over AI-Generated Errors in Asylum Case
UK and Ukraine Agree to Share Electronic Warfare Technology
Apple Briefly Crosses Five Trillion Dollar Valuation as Investors Retreat From AI Bets
Badenoch Offers Tory Votes to Keep Serious Offenders in Prison
Why Americans Queue for $15 Ice Cream and a $100 Caviar Pint
Another AI Genius Left the United States — and Silicon Valley Is Starting to Worry
Shein Reports $99mn Loss as Trade Barriers Test Low-Cost Model
CXMT Gains 466% in China’s Biggest IPO Since 2010
Amazon Seeks Approval for 5,105-Satellite Mobile Network
Burnham Puts School-to-Work Reform at Centre of Welfare Strategy
Johnson & Johnson Agrees to $5.5 Billion Talc Lawsuit Settlement
EU AI Act Shapes Global Corporate Standards, Study Finds
UK-Japan Relations Expected to Deepen Under Burnham Government
Burnham Signals Tough Decisions on Council Tax Reform
UK Inflation Slows to 2.6% in June
Bank of England Holds Interest Rates at 3.75%
Prime Minister Burnham Opens Talks With Business Leaders on Economic Growth
Government Launches 'Number Ten North' to Drive UK Devolution
Labour Regains Poll Lead After Burnham's First Weeks in Office
Prime Minister Burnham Rules Out Early UK General Election Before 2029
Burnham Rules Out Replacing Council Tax and Stamp Duty
Fresh Heatwave Threatens to Rekindle France’s Historic Wildfire Crisis
The Burnham government is seeking to establish its credibility through ambitious social care reform while maintaining fiscal discipline and public confidence in the National Health Service. Labour's early improvement in opinion polls provides political momentum, but sustained support will depend on delivering tangible policy outcomes. Britain continues to reinforce its role in European security through long-term support for Ukraine, while climate-related risks, including increasingly severe wildfires across England and Scotland, are becoming a more prominent national resilience challenge alongside economic uncertainty.
United Kingdom Economy Remains Exposed to Global Energy Risks
×