Paul Johnson, director of the Institute for Fiscal Studies, has warned against significant tax cuts before next year's general election, saying there is a risk that it could result in higher interest rates. While Prime Minister Rishi Sunak and Chancellor Jeremy Hunt have said cutting inflation is the Government's economic priority, sources suggest Downing Street has discussed cuts, such as reducing income tax by up to 2p. Mr Johnson said such a cut would be a "political and not an economic decision" that carried risks. Noting that 2p off income tax equates to around £15bn, he says there are questions over how the Bank of England may respond. He adds that a “nightmare scenario will be a nasty market reaction,” such as that seen after Liz Truss’ mini-Budget. Mr Johnson has also urged the Conservatives and Labour to be clear with voters that many people would have to pay more tax if public services are to improve. He said it would be “really quite helpful” if both parties “could be open about the scale of the challenges,” adding: “The part we're not going to get any honesty on, I don't think, is on tax and spending."
The Observer