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UK's Hunt tries to defuse tax row with cuts to government staff

By Elizabeth Piper, Alistair Smout and Andrew MacAskill

MANCHESTER, England (Reuters) -British finance minister Jeremy Hunt set out plans on Monday to freeze and then cut the number of government workers to save up to 1 billion pounds ($1.2 billion), an attempt to appease some in his own Conservative Party noisily demanding tax cuts.

While admitting "the level of tax is too high", Hunt sought at the governing party's annual conference to turn attention towards efforts to boost public sector productivity in Britain, saying that was the way to reduce ballooning public spending.

Senior Conservative lawmakers, including Prime Minister Rishi Sunak's predecessor Liz Truss, have demanded a reduction in the size of the state and Hunt attempted to deliver on that while refusing to hand them any sniff of tax cuts.

He described the move as proof of Sunak's desire to show his government was willing and able to take "tough decisions" to make people better off - a bid to convince voters to back the party at an election expected next year.

"We need a more productive state not a bigger state," Hunt told the conference in the northern English city of Manchester, to enthusiastic applause from a Conservative faithful increasingly concerned about the opposition Labour Party's commanding lead in opinion polls.

"So today, I'm freezing the expansion of the civil service and putting in place a plan to reduce its numbers to pre-pandemic levels. This will save 1 billion pounds next year."

His spokesperson said the aim was to cut the number of civil servants, or officials working on government policy, from approximately 460,000 to 400,000 by 2025, and that Hunt would seek to improve productivity across the public sector.

Public and Commercial Services union general secretary Mark Serwotka said shrinking "an already-overstretched and under-resourced civil service" would result in cuts to vital services.

"As usual, a Conservative government is seeking to blame working people for the incompetence of their own ministers," he said in a statement.

RED MEAT TO CRITICS

Civil servants have long been in the sights of some on the right of the Conservative Party, who accuse them of thwarting post-Brexit policy, and Hunt's announcement seemed aimed at trying to ease their frustration over a lack of tax cuts.

Sunak's predecessor Liz Truss, prime minister for a chaotic six weeks last year, made her presence felt at conference, telling a packed venue Britain was far from a "free-market paradise" and needed to cut taxes to boost growth.

"We need to acknowledge where are now," she said. "We need to acknowledge that the government is too big, that taxes are too high and that we are spending too much."

Earlier, Hunt, aiming his remarks at Truss, was blunt in his refusal to offer any sign of tax cuts. "I believe in lowering taxes but we don't know whether that's going to be possible before the next election at the moment," he told Times Radio.

But the civil service cuts and an increase in the minimum wage to at least 11 pounds ($13.42) an hour from 10.42 pounds were unlikely to stem the rows.

Whether it's how to tackle illegal immigration or a high-speed rail project, the party is divided and Sunak is hoping the conference can offer a reset of sorts before an election which must be held by January 2025.

He has narrowed the gap with Labour after announcing a watering down of climate policies to reach net zero targets, but many Conservative lawmakers and members in Manchester are already resigned to losing, and some ministers are using the conference to show their potential to replace him.

Not helping Sunak's cause among champions of traditional low-tax Conservative values was a report on Friday by the Institute for Fiscal Studies think tank that showed tax revenue was likely to represent 37% of annual economic output at the time of the next election - Britain's highest tax rate since at least the 1950s.

While the British government's tax take is high by historic standards at 33.5% of gross domestic product in 2021, it is well below that in other big western European countries which is nearer 40%, according to OECD figures.

Hunt was keen to champion Britain's economic performance, repeating the Office of National Statistics' revised assessment of the economy to say it had been "one of the best" performing large economies since the COVID-19 pandemic.

"So to all the pessimists and declinists who've been talking us down, we say this: don't bet against Britain - it's been tried before and it never works."

(Reporting by Alistair Smout, Elizabeth Piper and Andrew MacAskill; additional reporting by Kylie MacLellan, Sachin Ravikumar and Sarah Young, Editing by Emelia Sithole-Matarise and Catherine Evans)