Final two contenders offer different tax cut priorities

21 Jun 2019

The new Conservative party leader – and the next Prime Minister – will be either the former foreign secretary Boris Johnson or the current foreign secretary Jeremy Hunt. They have to convince the 160,000 party members to vote for them, with the final result to be announced during the week of 22 July. There will be a head-to-head debate on ITV on 9 July.

Both contenders have set out proposals for tax cuts during the contest already.

Jeremy Hunt

Jeremy Hunt wants cuts to corporation tax and offer tax breaks for the building of granny flats.

Hunt has made much of the apparent fact that he would be the first Prime Minister to have been and entrepreneur, saying that he wants to turn Britain into the next Silicon Valley, a ‘hub of innovation’.

He told the Sunday Times: “We need to send a signal to the world that we are going to be the best place to do business anywhere in the world. I think the symbol that would do that is if we reduced our corporation tax to Irish levels — 12.5%. We know it has transformed Ireland’s economy.”

This proposal was one of a number in think tank Onward’s recent Firing on all cylinders report, which Hunt has endorsed more generally. The report outlines a ‘trickle-up’ economic approach which would see corporation tax lowered and other taxes cut. As well as corporation tax, other taxes on businesses could be cut even further in the poorest areas to create jobs, the report said.

He explained the rationale for his tax breaks for granny flats to the Mail on Sunday: "Grandma and Grandpa can look after the kids but it's also fantastic for the kids, it's fantastic for the grandparents, so I want to see if we can introduce tax breaks for people who want to build granny flats or make adaptations to make it easier to have an older person living with them and send a strong signal that if you want to stick together as a family, the state will support you."

Hunt also suggests a cut to the interest on student debt while people are studying, moving from the formula of retail prices index plus three per cent, to RPI. Experts say this addresses an unjust peculiarity of the scheme, which means at the point when students are least likely to be able to afford repayments they face interest at the highest possible rate. He also pledged ‘help for graduate entrepreneurs’.

Boris Johnson

Former Mayor of London and leadership favourite Boris Johnson has promised to both cut taxes and increase spending on schools and the police. At his campaign launch Johnson suggested he could ‘cut some taxes and you get more money in’ to cover the costs.

Most eye-catchingly Johnson has said he would raise the 40 per cent tax rate threshold to £80,000, reversing the effects of ‘fiscal drag’, which has brought more people into the higher rate tax bracket over time. He plans to pay for the cut partly from a pot set aside by the Treasury for a possible no-deal Brexit, and partly by increasing employee National Insurance payments (that is, the upper earnings limit would rise with the higher rate threshold).

Johnson’s camp insist it would be part of a wider – and so far unknown – package of tax changes. In the BBC’s Leadership debate this week, Johnson said he would lift the National Insurance threshold for the low-paid but downgraded (in many observers’ eyes) his proposal on the higher rate threshold to an ‘ambition’ that was ‘open to debate’.

There has been controversy in Scotland over the fact that, while the higher rate threshold increase would not apply to Scottish taxpayers, the accompanying increase in the national insurance upper earnings limit would, increasing the tax bills of higher earners in Scotland. Another consequence of the proposal is that it would reduce the amount of higher rate tax relief which can be claimed back via self-assessment for pension contributions.

There is speculation Johnson will consider cutting stamp duty on home purchases — a policy favoured by Liz Truss, chief secretary to the Treasury and a key member of the Johnson team — and he has also called more generally for cuts in corporation tax and business rates. The financing of such moves is not clear. He is also said to be determined to reduce the national debt as a proportion of gross domestic product.

By Hamant Verma