Within hours of submitting bids for the leadership of the Conservative Party following last week’s resignation of Boris Johnson, senior candidates promised sweeping tax cuts and threatened to leave a black hole in Britain’s finances.
The economy is becoming a crucial issue in the race for Britain’s next prime minister, with a dividing line between those who want to hold on to the Johnson government’s vision of investing in public services and those who want to push supply-side reform. is already emerging.
Former chancellor and current favorite Rishi Sunak launched a cryptic attack on the Tories by making unrealistic vows, which he described as “cozy fairy tales”. In the video launching his campaign, he asked, “Are we approaching this moment with honesty, seriousness and determination?”
Sunak has yet to prepare his full economic platform, but he is expected to argue that his actions as chancellor were responsible. His campaign said: “He will fight inflation, prop up our economy and cut taxes. He wants to use the new freedoms Brexit is giving us and the new mindset it can give us to fuel growth.”
But several other proposers are proposing significant departures from Sunak’s policies, notably former Health Secretary Sajid Javid, former Health Secretary Jeremy Hunt and Secretary of State Liz Truss, who is expected to start her campaign in the east on Monday.
Other candidates, such as Chancellor Nadim Zahvi, Tom Tugendhat, chair of the Special Committee on Foreign Affairs, and Suella Braverman, Attorney General, have spoken of the need for a tax cut but have not presented any plans.
The promise of tax cuts is intended to appeal to 358 Tory lawmakers, who will begin selecting a shortlist of candidates on Wednesday before party membership votes on the final two candidates.
UK research at a changing European think tank shows Conservative MPs are critical of the rights of Tory party members on economic issues such as inequality and taxes and are ahead of voters’ rights.
Paul Johnson, director of the think-tank Institute for Fiscal Studies, said the scale of the promises made by many candidates are not easy for the fund. “But everyone wants to tax less [the candidates] You have to be aware of the consequences,” he said.
He said applicants would face two difficult decisions in order to fulfill their pledges. “Using this scope for tax cuts, for example, almost certainly means big real cuts in public salaries,” he said. “Certainly, contrary to the Conservatives’ manifesto, borrowing more is an option. That can be risky in an environment of extreme inflation.”
An analysis by the Financial Times of the pledges of the main candidates shows how much each will cost.
Javid, whose promises will be worth £49.4 billion, has passed the most expensive tax cuts of any candidate to date. The former chancellor has proposed reducing the corporate tax rate by 1 percent in a year until it reaches 15 percent. As chancellor, Sunak plans to raise the rate from 19 to 25 percent next April.
According to the HM Revenue and Customs Ready Reckoner Table, a 15 per cent corporate tax rate would amount to £34 billion a year compared to a 25 per cent corporate tax rate, providing an estimate of the total cost of the tax cut.
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Javid has also pledged to roll back the Government’s proposed increase in Social Security, which will bring in £18bn a year by 2025-26, although the cost will be lower – £13bn a year by 2025-26 – if he also reverses the increased limit. to pay the contribution.
His other proposals include bringing forward a planned income tax cut from 2024 to next year, costing £6bn a year through 2024-25, and further fuel tax cuts ranging from 2.4p per liter of petrol to a 5p tax cut costs. billion pounds. Diesel.
Assuming the fuel tax and income tax proposals are only temporary, the total cost of the Javid package of tax cuts would be between £47 billion and £52 billion a year, or around 2 per cent of GDP.
In an interview with the Sunday Telegraph, Javid defended his position. “There are some who say that without growth you can’t deduct taxes. I think this is wrong. I think this is a fundamentally flawed analysis. I don’t think you can grow without tax deductions.”
Hunt didn’t go as far as Javid in his bid for the leadership, with offers costing a total of £39bn. He proposed an immediate £34 billion in corporate tax cuts, along with a five-year suspension of corporate taxes in the most deprived parts of the country. The cost would be determined by how the areas were defined.
An adviser to Hunt said his tax cut plan would “highlight a development our economy has been missing for too long: Ireland’s big corporate tax cuts in the 1990s created a ‘Celtic Tiger’ economy; Jeremy UK will do the same for you.”
However, reducing corporate tax to 15 per cent, the effective average rate, after allowing for allowances, would leave the UK in breach of the new minimum global corporate tax rules agreed by the OECD.
This allows other countries to collect accrued tax revenue from UK-earned profits, effectively eliminating any incentives to invest abroad through lower tax rates, while at the same time losing money to the treasury.
Dan Needell, founder of think tank Tax Policy Associates, said the UK tax cut was “completely pointless” as London would “leave tax revenue to other countries”.
The truce has yet to promise corporate tax cuts, but pledged to reverse the government’s national insurance growth, which would cost between £13 billion and £18 billion a year between 2025 and 2026, depending on whether the threshold on the payment is also examined .
A Truss advisor said her pitch would “provide a gateway into the economy. Among other things, it would perform a quick and intelligent spending review. Liz’s second and third priorities are economic growth. She will be bold on supply-side reforms that Tory governments have long promised, but Liz will deliver.”
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