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Can the next Tory leader really cut taxes for the wealthy?

Politics Explained: Several of the contenders – most notably Boris Johnson – have made pledges to lower rates for the well-off

Andrew Grice
Monday 10 June 2019 15:12 EDT
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Who could replace Theresa May as Tory leader?

While Brexit inevitably dominates the Conservatives’ leadership election, rival candidates are also clocking up expensive promises on tax and spending that they might struggle to keep as prime minister.

Many of the 120,000 Tory members who will decide the contest regard Margaret Thatcher’s premiership as a golden era, so several contenders are keen to dangle the carrot of tax cuts before them. Their pledges are at odds with the need – and voters’ desire – for more money to be pumped into public services as austerity comes to an end after nine years. Indeed, there is arguably a case for some taxes to rise to tackle problems such as social care. Candidates have suggested that borrowing would be reduced less quickly than planned. They are less keen to speak about the spending cuts that might be needed to fund lower taxes.

Boris Johnson has made the most dramatic pledge: to raise the starting rate for the 40p tax band from £50,000 to £80,000. Although some of the benefit for higher earners would be clawed back through higher national insurance payments, it would still cost about £10bn. Mr Johnson’s team claims the plan would be funded from the £26bn of “fiscal headroom currently set aside for no-deal preparations”. But this is dubious, since the money might be needed for a no-deal exit, which Mr Johnson has promised to implement if no agreement with the EU has been reached by 31 October.

Mr Johnson’s promise undermines his claim to be a One Nation Tory. Dominic Raab, a rival Brexiteer, said it would feed the “caricature” that the Tories were “the party of privilege”. Raab has pledged to focus tax cuts on people earning less than £50,000 a year, by reducing the 20p basic rate by 1p every year for five years. However, his plan would cost an estimated £32bn.

Matt Hancock is promising to target the low paid by raising the national living wage to £10.21 an hour by 2022, a cost falling on employers rather than directly on taxpayers. Jeremy Hunt has raised eyebrows by suggesting he would double the share of GDP devoted to defence spending from 2 to 4 per cent, in line with the United States. He would also reduce corporation tax for business to 12.5 per cent, a move also favoured by Michael Gove, Sajid Javid, Esther McVey and Mr Hancock.

Mr Gove made an eye-catching pledge to replace VAT with a more flexible sales tax that could be used to encourage people to buy “good” products – for example, to help the environment. But VAT brings in almost £130bn a year, so any change could be risky. While such crowd-pleasing promises might play well with Tory members, would they survive contact with the real world? An incoming prime minister would certainly come under pressure to honour their pledges. But they might also come up against the reality of pressure to spend more on schools, the police, health, social care, local government and prisons.

Such demands might force the new premier to temper their desire to reduce taxes, especially as a government-wide spending review will be near the top of their in-tray. Philip Hammond, who is unlikely to remain as chancellor to oversee the review, has warned leadership candidates against reckless, populist solutions and “relying on tax cuts and deregulation only” to renew the party. But it seems that most of the contenders are not listening.

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