Jeremy Hunt hopes to kickstart the economy by slashing business taxes in his autumn statement.
The Chancellor told the Daily Express it’s his “priority” as he seeks to boost growth.
Improved public finances have raised hopes there is plenty of wriggle room for a sack of pre-Christmas giveaways.
As well as helping businesses, Mr Hunt is considering cutting Inheritance Tax in next week’s crunch announcement – the last major fiscal event before election year.
He will pore over the final forecast from the Office of Budget for Responsibility today before making final decisions.
He said: “I think the priority should always be business tax cuts if you have headroom for cuts.
“Because in the end what we need to do is to improve the long-term capacity of the British economy to generate the wealth we need to pay for the NHS. So that will always be the priority.”
The Autumn Statement will be an attempt by the government to get on the front foot following the Supreme Court’s hammer blow to the Rwanda deportation plan.
Downing Street has been buoyed by the good news on inflation which plunged to 4.6 per cent last month.
Government borrowing, the difference between spending and tax income, was £20 billion lower last year than forecasted by the OBR.
Furthermore, the Resolution Foundation has claimed Mr Hunt has an extra £6.5 billion to spend because previously high inflation, coupled with record wage growth, is driving up tax revenues.
Overall it means the government has more than £26 billion of headroom, compared with £6.5 billion at the time of March’s budget.
While some of this will be retained as a “cushion”, Mr Hunt is considering an array of tax cuts amid mounting pressure from Tory MPs.
But he vowed not to be irresponsible and risk inflation getting out of control again.
He said: “We do want to bring taxes down. There are no shortcuts to doing that. The one thing we won’t do is to bring taxes down in a way that fuels inflation.
“Because having just halved inflation, we don’t want to do anything irresponsible that will take us in the other direction.”
The Chancellor is expected to cut taxes for small businesses, although large retailers such as supermarkets will see the amount they pay rise.
The threshold at which businesses pay VAT could be increased from £85,000 to £90,000.
He is also set to extend “full expensing”, a tax relief allowing businesses to offset their investments against corporate tax.
He has come under pressure from both Tory MPs and Labour MPs to make the move permanent after announcing only a three-year plan in the March Budget.
There has also been speculation that inheritance tax will be cut.
One option includes halving the rate of inheritance tax, which is charged at 40 per cent for estates worth more than £325,000 with an extra £175,000 allowance towards a main residence if it is passed to children or grandchildren.
The Treasury is considering plans to cut the rate to 30 per cent or 40 per cent, while it is also examining proposals to increase the thresholds for the tax.
Mr Hunt is said to favour cutting inheritance tax rather than income tax because it would not have a big impact on inflation.
It is also much cheaper to cut. Abolishing inheritance tax would cost about £7 billion a year, but cutting income tax by 2p in the pound would cost £13.7 billion a year.
The hospitality industry could also be in line for an extension to business rates to protect the future of the hospitality industry and the High Street.
When asked today about cutting taxes, Mr Sunak said: “Well the most important thing economically that’s happened this week is that we met the pledge that I made to halve inflation.
“Now of course I know people are still suffering, they have been, so there’s work to do but that’s an important milestone because inflation is like a tax: it makes everyone feel poorer.
“It puts the prices of things up, eats into your savings, your pension, and that’s why it was so important to halve inflation.”
Robert Colvile, director of the Centre for Policy Studies, said: “News that the Autumn Statement will contain positive news on business taxation is certainly welcome.
“Businesses need certainty to invest in the long-term and the UK’s international tax competitiveness is currently hampered by our comparatively high rates. Measures like making full expensing permanent, something the CPS has consistently called for, will provide the economic boost we need to get back to growth.”
John O’Connell, chief executive of the TaxPayers’ Alliance, said: “Cutting business rates would be a shot in the arm for firms and high streets across the UK.
“Our retail and hospitality sectors are in dire straits, and punitive business rates are to blame.
“The chancellor should make this the first in a raft of measures to reinvigorate bricks and mortar business up and down the country.”
Meanwhile, former Home Secretary Dame Priti Patel is leading calls for the Chancellor to ditch the tax on defibrillators to widen access and save lives.
She is one of 112 MPs to have written to the Prime Minister demanding action.
The campaign is led by the British Healthcare Trades Association and backed by leading charities.
Dame Priti said: “I hope that in his upcoming Autumn Statement the Chancellor moves to abolishing this immoral tax on this vitally important lifesaving equipment so that more communities in Witham and across the country have access to defibrillators.”