Chancellor Jeremy Hunt is looking at cutting planned public sector spending in order to lower taxes, Sky News understands.
The government has been hinting at further tax reductions in recent weeks ahead of the budget on 6 March – and as it seeks to make an attractive offer to voters before the next general election.
But as the country enters a recession, questions remain over whether there is enough fiscal headroom in the Treasury’s coffers to make such a move.
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Sky News understands it could come at the expense of public services, as first reported by the Financial Times.
Mr Hunt is thought to be considering lowering his planned 1% real terms rise for public spending to around 0.75% post-2025, which could give him up to £6bn to spend on tax cuts.
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Asked by Sky News if tax cuts could be expected in the budget, Mr Hunt said: “Chancellors don’t talk about budgets just a few weeks before, and that is for a very good reason because I don’t yet know the final numbers that I will receive from the Office of Budget Responsibility.
“But what I would say is that I do believe if you look around the world, the economies… like the United States and Canada which have lighter taxes, particularly lighter taxes on business – tend to grow faster.
“But I would only cut taxes in a way that was responsible and I certainly wouldn’t do anything that fuelled inflation just when we are starting to have success in bringing down inflation.”
And is Mr Hunt prepared to further restrain public spending for tax cuts?
The chancellor told Sky News: “Well, you will have to wait for the budget for the decision the prime minister and I eventually make.
“But what I would say is I was health secretary for nearly six years, I negotiated a lot of extra money for the NHS, I am a passionate supporter of the NHS and all our public services.
“But in the long run, the best thing I can do as chancellor for the NHS is to make sure that our economy is growing healthily.
“So what you will see in everything I do in the budget on 6 March is prioritising economic growth.
“And we have a plan which we are sticking to, which is bringing down inflation and unlocking the potential for growth – may I say in stark contrast to the Labour Party, which has just abandoned the central plank of their economic plan.
“They don’t have a plan and this is a time when we need to stick to our guns.”
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But Labour’s shadow chancellor Rachel Reeves said Prime Minister Rishi Sunak could “no longer credibly claim that his plan is working or that he has turned the corner on more than fourteen years of economic decline under the Conservatives that has left Britain worse off”.
Dubbing it “Rishi’s recession”, Liberal Democrat leader Sir Ed Davey added: “Years of Conservative chaos and a revolving door of Conservative chancellors has culminated in economic turmoil [and it’s] hardworking Brits forced to pick up the tab for this mess, through high food prices, tax hikes and skyrocketing mortgage bills.”