After the first round of voting by MPs, six candidates remain in the Conservative leadership election, and tax remains a key policy battleground in the contest, second only to Brexit.
A number of candidates have called for tax cuts, both generally and specifically. This report updates last week’s, following additional announcements and statements. The odds are from Paddy Power as of the afternoon of Friday 14 June 2019.
Boris Johnson (1-5)
The former Mayor of London and leadership favourite launched his campaign with a promise to both cut taxes and increase spending on schools and the police. The MP suggested he could ‘cut some taxes and you get more money in’ to cover the costs. He said he would use money currently set aside for a no-deal Brexit to raise the 40 per cent tax rate threshold to £80,000. Johnson said this would reverse the effects of “fiscal drag”, which has brought more people into the higher rate tax bracket over time.
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.
Jeremy Hunt (6-1)
The Foreign Secretary has backed proposals in think tank Onward’s Firing on all cylinders report that outline a ‘trickle-up’ economic approach which would see corporation tax lowered and other taxes cut. The report says corporation tax, which is currently 19 per cent, should eventually be cut to 12.5 per cent, in line with Ireland, to stimulate investment and productivity. Other taxes on businesses could be cut even further in the poorest areas to create jobs, the report said. He 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’.
Michael Gove (16-1)
Michael Gove is another contender who has endorsed the Firing on all cylinders report (see above). Gove wants to reduce the regulations which he says hold business back, cutting and reforming taxes - such as business rates. Additionally he wants to use “the opportunity of life outside the EU” to look to replace VAT with a ‘lower, simpler, sales tax’, ensuring our business tax structure is the most competitive in the G20 and reducing marginal tax rates for the poorest families to reward work.
Rory Stewart (18-1)
The International Development Secretary has steered away from big promises on tax cuts or higher spending. Stewart has set out ‘six points for our economy’ in a campaign video: retain UK’s reputation for economic competence; prioritise spending on public services; bring forward infrastructure investment urgently; prepare people for skills of the future; shareholder economy; and make the UK a place where business can flourish. Stewart said he wants to boost spending on research and development, and make it easier to start new businesses by simplifying tax code and cutting red tape. He took a swipe at rival candidates, saying: “Candidates that are advocating a no-deal Brexit as well as tax cuts will -- in one afternoon in October -- lose us a reputation that we have spent 300 years building”.
Sajid Javid (20-1)
The Home Secretary indicates that he is willing to scrap the 45 pence rate of income tax in a bid to inject more ‘dynamism’ into the economy. He argues that income tax cuts can pay for themselves, highlighting increased tax revenues in the wake of George Osborne’s decision to scrap the 50 pence rate of income tax. He says: "If it can be demonstrated that a further cut in the additional rate can raise more taxable revenues that should be looked at. If I was Prime Minister, my intent would be to do as much as I can to keep cutting taxes on personal income." However, he later said tax cuts would be considered only ‘when it is affordable’ and that he would prioritise people on lower incomes. Javid has already vowed to freeze fuel duty for at least two more years. One of Javid’s more controversial policy ideas came in September 2018 when he proposed to scrap auto-enrolment if there is no Brexit deal.
Dominic Raab (50-1)
The former Brexit Secretary has vowed to cut the basic rate of income tax by a penny each year ‘as Nigel Lawson did in the 1980s’ (from 20 per cent to 15 per cent). He has also called for the National Insurance threshold to be raised to £12,500, mirroring the level of earnings at which people start paying income tax. But he said cutting taxes for those on higher incomes ‘would not be my first priority’. Raab proposed to fund the tax cut partly by closing down or merging government departments. Raab has laid into Johnson over his plan to slash taxes for people earning more than £50,000, saying the pledge by his fellow Brexiteer would feed into the ‘caricature’ that the Tories were "the party of privilege" as he talked up his own plan to raise the tax threshold for lower earners.
Conservative MPs have started to vote in a number of ballots, which began this Thursday, to whittle the candidates down to two MPs. The final two contenders remaining after further MPs' ballots next week will go to a party-wide vote. The winner of the contest to succeed Theresa May is expected to be announced in the week of 22 July.
Health Secretary Matt Hancock quit the contest to become Conservative leader today (Friday) a day after coming sixth in the first ballot of the party's MPs. Meanwhile, Andrea Leadsom, Mark Harper and Esther McVey were knocked out in the first round of votes yesterday (Thursday).