Hunt explores fresh squeeze on public spending to fund tax cuts

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Jeremy Hunt is considering slashing billions of pounds from public spending plans to fund pre-election tax cuts if he is penned in by tight finances in his March 6 Budget.

Treasury insiders say the UK chancellor is looking at “further spending restraint” after 2025, if official forecasts suggest he does not have enough fiscal headroom to pay for “smart tax cuts”.

Economists have warned Hunt’s current plans for a 1 percentage point increase in public spending until 2029 are a “fiction”, as they would imply serious real-term cuts to some stretched public services.

But people close to Hunt said Treasury officials were considering going further and reducing projected spending rises to about 0.75 percentage points a year, releasing £5bn-£6bn for Budget tax cuts.

The manoeuvre is being considered because tax cuts are seen as politically essential ahead of a general election expected this year but the government’s headroom has become more constrained by higher borrowing costs.

“It doesn’t look like the chancellor will have as much space for tax cuts compared to last autumn, so senior folk internally are starting to look at further spending restraint and productivity gains in the future if the numbers move against us again,” said a Treasury insider.

“It is a tough call, but it isn’t clear whether there will be easier alternatives.”

The news will be seen by some as an exercise in expectation management by Hunt, who would prefer to be able to reduce taxes without further cuts to underfunded public services on March 6.

Much depends on how big a “fiscal headroom” the Office for Budget Responsibility gives Hunt; the independent body handed its latest forecasts to the chancellor on Wednesday.

At the Autumn Statement in November, the OBR said Hunt had £13bn of headroom left against his self-imposed borrowing target of cutting…