This week tens of millions of workers will receive their pay slips for the month of January and with them a tax cut. National Insurance is going down, so take-home pay is rising.

Polls show that voters think Labour is more likely to cut tax than the Tories, a surprise weapon for Starmer

The NI tax cut is meant to signal a ‘gear shift’ – as the Prime Minister told this magazine last month – when it comes to taxation. Rishi Sunak and Jeremy Hunt have hinted that more cuts may follow in the spring Budget.

Will voters be grateful? In the past, the governing party has benefitted from pre-election tax cuts. Ahead of the Tories’ surprise victory in 1992, Norman Lamont introduced a 20p income tax rate. In 2005, Gordon Brown raised the thresholds for paying inheritance tax and stamp duty. In 2015, George Osborne increased the personal income allowance and cut beer duty before his party won a surprise majority.

The difference this time is that the freeze in thresholds and allowances will increase tax far faster than National Insurance cuts it. Taxes are at a post-war high and the burden is still rising. Indeed, according to a recent study by the Institute for Fiscal Studies, when all the budgets delivered since Sunak announced the freeze are considered together, no one in the country is paying less tax.

This is perhaps why the Chancellor’s announcement of the NI cut has not resulted in a poll bounce for the Tories. The £26 billion raised in stealth-tax rises may have had more of an effect than the £9 billion in tax cuts. The government’s critics are emboldened. This week, Simon Clarke, the former levelling up secretary, called for Sunak to resign, saying that the Prime Minister would lead the party into electoral oblivion. For now, he is a lone voice, but the Rwanda rebels are moving from criticising Sunak’s small boats policy to attacking him over tax. As one member puts it: ‘Nobody is going to thank you for giving them 2p back on tax when you’ve been hitting them with exorbitant tax for years and inflation has been running at 10 per cent.’

Rebels aside, Labour doesn’t want to fight the Tories over which party is more likely to cut tax after the general election and it has not opposed the National Insurance cuts. Rachel Reeves, the shadow chancellor, is in a bind. If she fails to match any Tory tax cuts, Labour could be portrayed as a party of tax hikes. If she matches them, she faces the electoral risk of being accused by various bodies that the party’s spending plans don’t stack up. ‘The risk is we get boxed in,’ says a Labour aide.

Since Hunt announced the tax cuts, Labour aides have been working on ways to stop the Tories from getting any credit. ‘Rachel was very clear,’ says an ally of the shadow chancellor. ‘We are not going to let them get a bump out of this tax cut.’ She is helped in this regard by the many reports of how tax is rising overall.

Labour can spot a Tory vulnerability over tax and is going on the offensive. Polls show that voters think Labour is more likely to cut tax than the Tories, which is a surprise weapon for Starmer. Different lines were tested out in polling and focus groups. From these, it became clear that the most potent line of attack was that the effect of fiscal drag means voters do not actually feel better off despite tax cuts.

As a Labour internal memo by the party’s strategy and insights team from last month puts it: ‘The National Insurance cut was felt to be a “drop in the ocean” [among target voters] compared to the overall level of tax – VAT and fuel duty were raised as expenses that completely dwarf the cut”.’ It concludes the most effective line of attack would be: ‘For every 2p you get in “tax cuts”, the Tories are taking 10p more from you’ as ‘this is intuitively understood and echoes how [voters] view the Tories’ approach to tax – give with one hand and take with the other.’

It’s this argument that Labour wants to pursue all the way to the election. The party has poured money into getting the message to former Tory voters. Sunak has been promoting an online tax calculator to show what voters will save with the NI cut. Labour has launched its own ‘Tory tax calculator’ which takes a slightly different approach, looking at the whole picture and the effects of frozen thresholds to show voters how much more tax they would pay by 2027.

Internal analysis shown to Labour staff shows that their calculator has reached 7.1 million people on Facebook and been seen 90 per cent of the time in tax-related Google searches in target seats. The site has also been advertised on Tory websites such as ConservativeHome. For voters not familiar with fiscal drag, Labour is promoting videos by Martin Lewis, the popular money saving expert, explaining that it is a tax rise by another name.

Despite its attacks on the Tories regarding tax, Labour has not promised to unfreeze the thresholds. What’s more, confusion over Labour’s flagship policy of £28 billion in green investment means the party is vulnerable to accusations of economic irresponsibility. The history of Labour governments suggest they will find it harder than the Tories to hold a difficult line on public spending or industrial pay disputes. Under such pressure, will Reeves be able to convince voters that a Labour government would keep the tax burden as it is?

For now, it’s not clear whether that matters. For all the examples of tax cuts helping incumbents win elections, Reeves is learning the lessons of 1997, when the government’s strategy failed. Ken Clarke’s tax cuts were undermined by the introduction of VAT on fuel. Blair and Brown also had a good attack line which they used repeatedly: 22 Tory tax rises since 1992. For as long as the tax burden remains higher than it was in 2019, it’s all too easy for Starmer and Reeves to make a similar argument.