UK Markets closed

Sunak under pressure to protect school cash as he weighs up tax hike for wealthy

Rishi Sunak is weighing up a boost in taxes for the wealthy as he comes under pressure from a former Cabinet minister to protect “vital” school budgets in his bid to balance the books.

The Prime Minister and Chancellor are preparing for a crunch week in Westminster, with painful public spending cuts and tax hikes expected to pepper Thursday’s budget as the Tories seek to find up to £60 billion in savings and extra revenue.

A Treasury source confirmed one option under consideration is a reduction in the threshold at which people have to start paying the highest rate of income tax from £150,000 to £125,000.

This would essentially turn the previous chancellor’s approach to taxing the wealthy on its head, extending the reach of the 45p top rate where Kwasi Kwarteng scrapped it altogether.

It comes as Jeremy Hunt has warned of a “tough road ahead” for the UK, with GDP contracting by 0.2%.

Having warned the country he will be forced to making “eye-watering” choices to restore “economic stability”, the Chancellor is being urged by the former education secretary to shield schools from stinging cuts.

Kit Malthouse
Former education secretary Kit Malthouse (Stefan Rousseau/PA)

Kit Malthouse, who held the role during Liz Truss’s brief tenure in No 10, stressed things are “tight” in education, with schools “already struggling” with soaring energy bills, general inflation and the cost of living.

He said he had recently seen “some quite alarming stuff” in the news indicating there could be cuts to the education budget, warning it would be “unacceptable” to disturb the “dynamic” of the post-Covid catch-up effort.

“During the pandemic it was children and their education that was most significantly damaged, and we’re just in the middle of a kind of catch up – teachers across the country are working really hard to get kids back up to speed, performance having dipped naturally during the pandemic,” he told GB News.

“So to disturb that dynamic, just as this generation are getting back on their feet, would seem to me a really, really, unacceptable thing to do.”

Mr Malthouse said he knew from his time in the Department for Education that headteachers “across the land” are now questioning whether they can manage with the same staffing levels next year, given the squeeze on their budgets.

“Now, when you make cuts like Jeremy’s going to have to make… you have to do that within a framework of priorities – you have to say, look, there are some areas that we have to protect because they’re so important and so vital that we’ve got to stand by them even in times of financial difficulty,” he said.

“And for me, the number one should be schools and our children’s education, because if we don’t get that right, there will be a disaster – not just for them personally, but for the whole country down the road as they move through the education system and into the job market.

“So I would be putting schools and education front and centre as an area where if anything, we should be investing, not necessarily cutting.”

Mr Sunak is also said to be preparing to cut defence spending in real terms as planned budget hikes are dwarfed by soaring inflation.

The allowance for all departments, including the Ministry of Defence (MoD), will rise in line with the 2021 spending review, representing a cash boost, according to reports.

But it has been suggested this will be devalued by inflation, which stands at 10%.

Mr Hunt said on Friday he will be working to make a possible recession “shallower and quicker” in the autumn budget.

Sticking with the 2021 spending review would see the MoD budget increase in cash terms from £47.9 billion this year to £48 billion in 2023 and then £48.6 billion in 2024.

Meanwhile, CPI inflation is expected to have risen further last month after hitting a 40-year high of 10.1% in September.

The Conservative manifesto in 2019 pledged to “increase the budget by at least 0.5% above inflation every year of the new Parliament”, suggesting failing to add to the planned rise could constitute a breach.

But the Telegraph reported ministers will argue the promise can be met by taking the average annual increase across the five-year period as a whole.

A Treasury spokeswoman said: “Our number one priority is economic stability and restoring confidence that the United Kingdom is a country that pays its way.

“The Chancellor will set out a plan to see debt falling as part of the autumn statement on November 17, alongside a full OBR forecast”.

The Treasury said it would not comment on speculation around tax changes outside of fiscal events.