Sunak and Hunt warned of revolt by red wall Tory MPs if autumn statement favours the rich

Jeremy Hunt has been warned of a major backlash from Tory MPs and voters in the “red wall” north of England and Midlands if he uses the autumn statement to offer tax cuts for the rich.

Rishi Sunak and his chancellor are thought to be considering slashing inheritance tax – but the potential move is set to spark huge criticism for helping the rich while millions struggle with the cost of living crisis.

Mr Sunak and Mr Hunt are reportedly weighing up cuts to income or national insurance at the 11th hour – as they were warned by northern Tories that Wednesday’s autumn statement should focus instead on lower-paid workers and businesses.

It comes as a new report by the respected Institute for Fiscal Studies (IFS) report says an inheritance tax cut would deliver an average £180,000 windfall for millionaires.

Senior Tory MP John Stevenson, who chairs the Northern Research Group, said he backs reforming inheritance in the long-term – but told the Observer that “at this time any tax cuts should be aimed at helping businesses or the lower paid”.

Former minister Jonathan Gullis, who is the MP for Stoke-on-Trent North, said he believes inheritance tax should be “eventually abolished” – but said that “now is not the right time for this tax cut”.

The right-wing red wall MP argued that cutting the basic rate of income tax and increasing the threshold for the 40p rate would help families “really feeling the pinch”.

Mr Hunt gave his strongest hint yet that he was ready to cut taxes on Wednesday – telling Sky’s Sunday Morning with Trevor Phillips: “We need to show there is a path to a lower tax economy.”

The chancellor would not be drawn on whether he could cut income tax or national insurance, but told the broadcaster cuts may be necessary to cut taxes. “If you want to bring down personal taxes the only way to do that sustainably is to spend public money efficiently.”

Mr Hunt did not deny an inheritance tax cut was under consideration. “Everything is on the table in an autumn statement,” he said, before adding: “I’m not going to talk about any individual taxes because that will lead to even more fevered speculation.”

The Sunday Times reported that Mr Hunt and the PM are now weighing up cuts to income tax or national insurance, in a last-minute move to boost growth and their favour with voters.

The newspaper also said that they could put off the mooted cut to inheritance tax until the spring budget, to avoid allegations they are lavishing the rich. Whitehall sources described the report as speculation.

Higher tax revenues and lower borrowing costs have given Mr Hunt around £20bn more than expected – over triple the amount in March’s budget.

Mr Hunt is also under pressure over a squeeze on benefits, as he looks to fund tax cuts. Typically ministers use the September figure for inflation when uprating working-age benefits, which would mean a 6.7 per cent hike.

But Mr Hunt has not ruled out using October’s far lower figure of 4.6 per cent, which would cut spending by around £3bn. The savings would largely affect working-age households receiving disability or means-tested benefits, according to the IFS.

Using the lower rate would affect the incomes of nine million low-income families, according to the Resolution Foundation. New analysis by the think tank said families some would lose as much as £500 a year.

Slashing inheritance tax – potentially by half – would be popular with the Tory right as Mr Sunak comes under growing pressure from that wing of his party, but would only directly benefit a small proportion of the public.

Only around 4 per cent of deaths in 2020/21 resulted in inheritance tax being paid, with exemptions allowing many couples to pass on up to £1m tax-free.

Inheritance tax is charged at 40 per cent on estates of more than £325,000, with an extra £175,000 towards a main residence passed to direct descendants.

But Mr Hunt is said to be considering cutting it in half before a potential promise to abolish it entirely in the next Tory manifesto. The IFS said four-fifths of an inheritance tax cut would benefit those with more than £1m.

Former Conservative minister David Gauke told the BBC that cutting inheritance tax while millions struggle risked “re-toxifying” the Tory party.

Labour’s shadow chancellor Rachel Reeves said cutting inheritance tax seems an “unusual way” to help millions of struggling Britons.

“We are in the middle of a massive cost-of-living crisis and cutting inheritance tax – which benefits less than 4 per cent of estates each year – that seems an unusual way to tackle the scale of the cost of living crisis that we have right now,” she told Sky News.

Torsten Bell, head of the Resolution Foundation, questioned the idea of cutting inheritance tax now. “Even if you think lower inheritances taxes are desirable, are they more desirable than not whacking up taxes on income quite so much?”

Tax campaigner Richard Murphy also condemned the idea, calling it “easily the most stupid [potential tax cut] right now”. He added: “Doing so would save millions for a few already relatively rich people, do nothing for the economy, and increase inequality.”

Mr Hunt is also set to announce that households closest to new pylons and electricity substations could receive up to £10,000 off their bills over 10 years under plans aimed at boosting growth.

However, Liberal Democrat Treasury spokeswoman Sarah Olney said it would create “a postcode lottery system leaving millions of families still facing higher energy bills while others benefit”.

And Jonathan Bean, of Fuel Poverty Action, said it was an “ill-conceived”. He told The Independent: “It’s pretty crazy that some wealthy people in huge homes in the countryside could get a big discount, when we’re seeing some people forced to turn off their heating or forced to go to food banks.”