Is the halving of inflation a tax cut?

15 November 2023

The news earlier today that inflation has fallen to 4.6% from its peak of over 11% last year has prompted a number of claims from senior Conservative politicians, who have compared the impact with that of a tax cut.

Former chancellor Nadhim Zahawi MP said on X that “getting inflation down is a big tax cut”. Lee Anderson MP, deputy chair of the Conservative party, described inflation as “a tax on people’s pockets”, while at Prime Minister’s Questions earlier today, Rishi Sunak said halving inflation is “the most effective tax cut we could have delivered to the British people this year”.

We looked at a similar claim from the Prime Minister last month. As we wrote then, it is clearly not technically true that inflation is a tax or a reduction in inflation is a tax cut. Taxes are money paid to the state to fund public services, whereas inflation is an increase in the price of goods and services.

However it is true that both taxes and inflation can affect people’s disposable income, so Mr Sunak and others appear to be arguing that, in that respect, a reduction in tax and a reduction in inflation will have a similar impact on people’s personal finances.

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