(Bloomberg) -- Prime Minister Rishi Sunak linked spending cuts and tax reductions for the first time, making clear the UK government hoped to pay for further tax cuts by controlling its outlays on state services and welfare.

Sunak, who faces the prospect of a UK general election next year, is being pressured by members of his Conservative Party to ease the strain on households and business as the Tories trail Labour in polling. 

Despite cuts to the national insurance payroll tax announced by Chancellor of the Exchequer Jeremy Hunt in his Autumn Statement last month, the UK’s tax burden is still set to hit a postwar high over the coming years, according to the government’s budget watchdog.

“We are now focused on controlling spending and controlling welfare so we can cut taxes,” Sunak told reporters on the way to the COP28 climate summit last week. “When we can do more, we will.”

He attempted to contrast this with the opposition Labour Party — which leads the Conservatives by about 20 percentage points in national polls — saying their approach was instead to grow welfare and raise taxes. Labour has ruled out tax increases.

The UK economy is set to be a key battleground on which next year’s election is fought. Persistently high inflation and stagnant growth are expected to leave living standards lower over the course of this Parliament for the first time in modern history, according to economists at the Resolution Foundation think tank. 

The Bank of England is still weighing further interest rate hikes as it attempts to lower inflation from an annual pace of 4.6% in October to its 2% target. 

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