Boris Johnson’s proposed tax cuts could cost £20bn a year

Institute for Fiscal Studies think tank lays out hefty price tag

Boris Johnson has proposed tax cuts that would cost £20 billion a year.  Photograph:  Andy Rain/EPA

Boris Johnson has proposed tax cuts that would cost £20 billion a year. Photograph: Andy Rain/EPA

 

Tax cuts planned by Boris Johnson, the leading candidate to become Britain’s next prime minister, could cost as much as £20 billion a year, according to calculations from the Institute for Fiscal Studies think tank.

Mr Johnson, who is vying for the votes of Conservative Party members in a run-off against foreign minister Jeremy Hunt, has proposed raising the threshold at which higher-rate income tax is payable to £80,000 a year from £50,000.

Cutting tax on these earnings to 20 per cent from 40 per cent would cost the public finances around £9 billion a year, and benefit the highest-earning 10 per cent of Britons, the IFS said on Tuesday.

To put that figure into context, Britain’s official budget forecasters expect a £29 billion budget deficit this year, assuming there is an orderly Brexit, and to raise total revenues of £811 billion.

Mr Johnson has also suggested raising the point at which workers are liable for the 12 per cent National Insurance (NI) payroll tax, which currently applies to annual earnings above £8,632.

The IFS said each £1,000 increase in the NI threshold would cost the government £3 billion a year.

Raising the NI threshold to the £12,500 mark at which income tax first becomes payable would cost at least £11 billion. It would remove 2.4 million low-paid workers from the levy.

“It is not clear that spending such sums on tax cuts is compatible with both ending austerity in public spending and prudent management of the public finances,” IFS economist Tom Waters said.

Mr Hunt has proposed his own tax cuts, arguing for a reduction in the rate of tax on company profits to 12.5 per cent from the 17 per cent to which it is due to fall to in April 2020, as well as scrapping property taxes for small businesses.

Finance minister Philip Hammond has written to Johnson and Hunt, urging them to respect his fiscal goals to keep the annual budget deficit below 2 per cent of economic output and ensure that outstanding debt falls in percentage terms too. – Reuters