Hard work should be rewarded with tax cuts, Prime Minister Rishi Sunak has said, telling critics who doubt he can turn his party’s fortunes around that he is “totally up for the fight”.

Mr Sunak hopes a pre-election giveaway, along with an improved economic outlook, will help claw back a heavy opinion poll deficit against Labour.

Mr Sunak’s renewed promise to slash taxes when it is “responsible to do so” came after the publication of his own tax summary showed his UK tax bill was more than £500,000 last year, as his total income rose to £2.2 million.

Critics pointed out that he paid the same effective tax rate, about 23% of his annual income, as a teacher, despite raking in millions more.

That is because most of his earnings were in the form of capital gains, which is taxed at a lower rate than income.

Official figures next week may show the UK slipped into a technical recession at the end of last year, spelling gloom for Mr Sunak’s pledge to grow the economy.

But, in an interview with the Times, the Tory leader struck an optimistic note, suggesting the UK could once again outperform expectations.

“At the beginning of this year there is a sense that the country is pointing in the right direction,” he told the newspaper.

“Because economic conditions have improved, because the plan is working, you are starting to see mortgage rates come down and we have been able to cut taxes.

“I do believe those pressures are starting to ease and that hopefully over the course of this year we can continue to make even more progress.”

Chancellor Jeremy Hunt in November announced a cut in national insurance by two percentage points, from 12% to 10%.

Many economists said his autumn statement had factored in implausible squeezes to public spending, while the International Monetary Fund said further tax cuts in his March 6 Budget could risk the Government’s ability to invest money in the NHS and other vital services.

Mr Hunt last week sought to temper expectations about the size of tax reductions in his spring Budget, despite clamouring within the Tory ranks for cuts to try to woo voters.

The Prime Minister was also cautious, saying: “None of us ever talk about this stuff before budgets.

Jeremy Hunt
Chancellor Jeremy Hunt has said there is less scope for tax cuts in the spring Budget than there was in the autumn (Maja Smiejkowska/PA)

“Other people are. I think they’re over-interpreting. What the Chancellor and I have said is that of course our long-term plan is to cut people’s taxes.”

Amid speculation that the upcoming Budget could see another national insurance cut, Mr Sunak said that “cutting national insurance is a very direct way” to reward hard work.

Mr Sunak is under intense pressure as he has failed to close the opinion poll gap of about 20 points with Labour, and has faced calls from Tory former Cabinet minister Sir Simon Clarke to move aside for a new leader or risk an electoral “massacre”.

He also faces a by-election challenge next week in Wellingborough and Kingswood.

In his interview, the Prime Minister laughed at the idea that Tory rebels were plotting to oust him.

“I’m totally up for the fight,” he said.

Labour’s shadow chief secretary to the Treasury Darren Jones said: “Rishi Sunak’s words will ring hollow to the millions of families across Britain who have been left worse off after 14 years of Conservative failure.

“There have been 25 Tory tax rises since the election and the average household is set to be £1,200 worse off under Rishi Sunak’s tax plan.

“It’s time for a change and a Labour government with a plan to invest in Britain’s future.”

Mr Sunak was described as out of touch earlier this week for accepting a £1,000 bet with broadcaster Piers Morgan on the success of the Government’s Rwanda asylum scheme before the election.

Piers Morgan Uncensored
The Prime Minister doubled down on his controversial bet with Piers Morgan that flights to Rwanda would start before the election (Piers Morgan Uncensored/TalkTV/PA)

Despite the backlash, he told the Times: “I always honour things that I say.”

The former investment banker and hedge fund manager’s vast wealth was highlighted by the release of his tax documents on Friday.

His total income was up 13% from the previous year, rising to £2.2 million, and taking his total earnings over the last four years to about £7 million.

The statement showed he paid £508,308 in tax in the financial year 2022/23.

His effective tax rate of 23% is the same rate paid by a teacher on a salary of £41,600 per year, according to Tax Justice UK.

Executive director Robert Palmer said: “This is a feature of our broken tax system. At the moment someone who earns most of their money from their wealth, like the Prime Minister, pays a much lower tax rate than someone who relies on going out to work for their living.”