Tories will struggle to square tax cuts with political reality

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Good morning. It’s the morning after the night before: the DUP has reached an internal agreement to restore power-sharing, Taoiseach Leo Varadkar is sounding positive about the whole thing after a phone call with his opposite number Rishi Sunak, and the European Commission is also making happy noises.

It may be that a middle way has been found that doesn’t upset anyone involved or cross anyone’s red lines, but it doesn’t seem all that likely. What seems rather more probable is that when the UK government publishes its command paper today, setting out exactly what has coaxed the DUP back into power-sharing, someone somewhere is going to get very angry indeed. My bet is the DUP.

Speaking of getting very angry indeed: the IMF has called on Jeremy Hunt to avoid tax cuts and instead prioritise spending on areas such as health, education and climate change. Some thoughts on that below.

Don’t lose your headroom

Jeremy Hunt should focus on rebuilding the UK’s “fiscal buffers” and on consolidating the public finances, rather than cutting taxes, the IMF has warned.

In Conservative circles, this is barely raising a shrug. They remember that the IMF warned George Osborne about his plans, only to be surprised by the UK’s economic performance.

However, while I am not an economist and am not going to pretend to be one, I have observed at close quarters the Conservative government’s attempts to cut spending since the 2015 election, something that they have largely failed to do. It’s time to wheel out my favourite chart again:

Visibly, successive Conservative governments have found it increasingly difficult to cut spending.

Hunt’s “headroom” for tax giveaways is vulnerable to change and is in reality a projection that he will be less deep in debt, rather than he will have a surplus to play with. The Treasury’s internal analysis put this figure at £14bn, lower than that forecast by independent analysts.

The chancellor dropped hints earlier this month that he wanted to cut taxes again at the Budget. This relies on a belief that the Tories will find some kind of political alchemy that means they are able to overcome this difficulty in cutting public spending. I see absolutely no evidence to believe that they can do so. My underlying assumption is that whoever wins the next election will have to find ways of clawing back the tax cuts that the Conservatives give away between now and then.

The IMF may be wrong to suggest the Conservatives need to instead focus on health, education and climate change. But recent history suggests that they will end up choosing to do so under pressure. To the extent the IMF announcement matters politically, it gives a Labour government a way to exit from its own impossible pledges by claiming that the problem is the mess caused by the Conservatives.

Now try this

I had a really lovely time recently speaking to sixth form students at two excellent schools. (The FT provides free access to our website to any recognised institution anywhere in the world teaching 16 to 19-year-olds. Go to ft.com/schoolsarefree for more details.) We don’t guarantee that a columnist will turn up if asked, but I am always happy to do so: thus far the furthest from Hackney I have travelled is the Highlands, but I am always up for longer journeys.

I know that many Inside Politics readers are teachers, students or school governors, so if you have a politics society, a student paper or similar and you’d like me to speak, please do email.

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