Rishi Sunak and Jeremy Hunt are in conflict over plans to use next week’s budget to cut income tax, George Osborne, the former chancellor, has claimed.
The prime minister is said to be putting pressure on the chancellor to prioritise reducing income tax rates to start fulfilling a pledge Sunak made to lower the basic rate to 16p in the pound from 20 per cent.
However, the Treasury is understood to be backing a reduction in national insurance rates — paid only by workers — which is cheaper to implement and non-inflationary.
According to Osborne, the dispute had led to tensions between the two men as Hunt finalises the details of Wednesday’s budget.
“There’s certainly been friction between No 10 and No 11,” Osborne said on his Political Currency podcast. “It’s obvious that No 10 would like to cut income tax now. That is something Rishi Sunak promised when he was running to be the Tory leader.
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“But the problem that they’ve not been able to get around is the fact that this is regarded as inflationary by the Office for Budget Responsibility.”
Hunt is looking for ways to raise money to fund cuts to national insurance. He is preparing to scale back non-dom tax status, a plan originally put forward by Labour.
He is also considering adopting another Labour pledge — extending the windfall tax on oil and gas giants — in order to raise more revenue.
The move could force Labour to abandon plans that it was hoping to fund with the tax rises, including free breakfast clubs for schoolchildren and billions in extra funding for the NHS.
However, both moves risk inflaming tensions with the right of the Conservative Party, who argue that they would be self-defeating and ultimately result in reduced revenues for the Treasury.
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Sir John Redwood said that reducing non-dom tax exemption would result in wealthy people moving abroad and would “make the country worse off”.
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“It is easy to do popular things that make the country worse off,” he said. “The politics of jealousy doesn’t work.”
Rachel Reeves, the shadow chancellor, claimed this week that an incoming Labour government would inherit the worst economic situation of any new administration “since the Second World War”.
“George Osborne said in 2010 that they were going to fix the roof. What they’ve done is smash the windows, broken the door down and are burning the whole house down,” she told Sky News.
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“That is the reality for whoever is prime minister and chancellor after the next election — that’s the inheritance that whoever forms the next government is going to have to deal with.”
The Liberal Democrats called on the prime minister to step back from any discussions on the potential scrapping of non-dom tax status as his wife has benefited from the exemption. Sarah Olney, the party’s Treasury spokeswoman, said Sunak “has a potential conflict of interest given his household benefited from this scheme”.
