Reform UK: Party drops radical tax cut commitment

Big tax cuts not realistic for now

In a major speech Reform UK leader Nigel Farage this week announced that his party is no longer committed to the £90 billion of tax cuts it proposed in its manifesto at last year’s election.

“We want to cut taxes, of course we do, but we understand substantial tax cuts given the dire state of debt and our finances are not realistic at this current moment in time", said Farage. In response to questions he emphasised that he wasn’t saying no tax cuts could be afforded, only that huge tax cuts – by implication those on the scale proposed by his party last year – couldn’t be afforded. He said this was a “mature” approach: “We are being sensible and not over-promising. But for us not to take account of the dire state of our public finances, that I think would be irresponsible.”

Party leaders had dropped hints earlier in the autumn that this was coming. In his speech at the party’s conference in Birmingham in early September, deputy leader Richard Tice said the party would need to cut “wasteful government spending” and “useless regulations” before being able to afford what he called “performance related tax cuts”. Party leader Nigel Farage was even clearer in a post-conference interview, saying: "we will ensure savings are made before implementing tax cuts.”

Reminder: The £90 billion of tax cuts in Reform’s general election manifesto included raising the inheritance tax threshold to £2 million, reducing corporation tax to 15%, lifting the income tax personal allowance to £20,000 and the higher rate threshold to £70,000, cutting fuel duty by 20p per litre and scrapping stamp duty on properties under £750,000. They also proposed tax breaks for married couples by scrapping the two-child benefit cap and introducing a transferable marriage tax allowance.

Income tax and IHT the priority for cuts

Which taxes are Reform still proposing to cut? The two mentioned by Farage in his speech were abolishing / not introducing inheritance tax on family farms and businesses, and raising the personal allowance.

“There are some relatively modest things we would do,” he explained. “We would immediately remove IHT from family farms. and from family-run businesses. And we will raise the thresholds at which people start to pay tax to begin the process of getting people out of the of the 16-hour a week working debt trap that so many people find themselves in.”

Asked by a journalist whether the latter policy meant he still proposed to raise the threshold to £20,000 Farage replied that he couldn’t give a figure at the moment. “We will raise thresholds. I cannot tell you what the state of the economy will be as the next general election approaches. If I'm right and that election comes in 2027, then the economy will be in an even worse state than any of us in this room can even predict. So, how can anybody project on pensions or thresholds or any of those things between now and then? What we will do and what we can do is to use whatever muscle we've got to fight and urge this government to change direction to ease the burden on small business being just one example.”

In response to a later question he affirmed that he does still have the ‘aspiration’ to raise the income tax threshold to £20,000 at some point, saying it is “vital for this country [that] we get it there”.

Welfare and regulation targeted for savings

Where will the savings to pay for tax cuts come from? Welfare cuts, deregulation, few civil servants and scrapping green subsidies it seems.

One area is welfare cuts. In his speech this week Farage promised “the biggest benefit cuts you've probably ever heard any government do”. These include removing Personal Independence Payments (PIP) from people with ‘non-major anxiety’ which he suggested would save £9 billion a year by 2029. All disability claims would have to be reassessed, in person, by an independent third party, he continued, arguing this would tackle the overdiagnosing of many conditions. Additionally the party has said it would bar anyone other than British citizens from accessing welfare.

Reform’s critics have suggested that the party’s policy of scrapping the two child cap shows it is not serious about getting the welfare bill down (Kemi Badenoch accused the party of having a “welfare addiction”.) Farage was prickly in his speech about this issue, saying he had only ever argued it should be removed for lower paid British couples who are both working. Analysis suggests that this will mean the change benefits only a very small number of families.

There is a broader “absolute promise” to reduce the size of the public sector and deliver a smaller state. Detail of what this will mean is fairly thin on the ground so far. Apart from benefits the example Farage picked out in his speech was looking at public sector pensions “which are a massive liability” with funds “paying fees that are way out of line for what should be appropriate”. In response to questions he confirmed that he is also looking to reduce the size of the civil service.

Deregulation is also central to the party’s agenda. Farage told his audience that “Brexit has been squandered… regulations and the way regulators behave with British business is now worse than it was at the time of the Brexit referendum vote.” He particularly focused on the financial services industry in his speech, saying “our aim would be to sensibly deregulate a rule book that was written for the European Union, not written for the city of London”. He complained that UK banks have been “forced to implement four major European Union money laundering directives” over the last few years, which had led “to the debanking of hundreds of thousands of individuals and tens of thousands of businesses across this country through no fault of their own”.

Another area identified for savings is anything associated with climate change. This is explored below.

Party gunning for ‘ridiculous’ IR35 rules

A big chunk of Nigel Farage’s speech was about the party’s offer to small businesses and sole traders, which focused on reducing the tax and administrative burdens on them.

Claiming that the government only listens to big business, he said small businesses are “ignored, but… put upon”. This included increases in corporation tax and national insurance as well as the administrative burden of Making Tax Digital: “Just think of this government saying their annual returns now must be quarterly returns with added bureaucracy and added costs.”

Off-payroll working rules were another area cited by Farage. He said small businesses were “embattled by IR35 regulations, designed by the Treasury, and weak Conservative chancellors who assume that everyone out there who isn't working for a big firm is some kind of crook.” “I'm sorry,” he continued, “but the IR35 rules are ridiculous. They're stifling innovation. They even drive some in their 50s just to throw their hands up and go into early retirement.”

Abolition of IR35 was in the party’s general election manifesto last year.

New deal for non-doms – but would it raise or cost money?

In June, Nigel Farage unveiled a new tax policy for non-doms, offering them the option to pay a one-off £250,000 fee to exempt overseas income and capital gains from UK taxation.

Farage elaborated on the policy in his speech this week, calling the changes to the taxation of non-doms introduced by Jeremy Hunt and added to by Rachel Reeves “a self induced act of financial stupidity”. “These people are the biggest spenders in the country,” he claimed, “but off they go.” He claimed there are a quarter of a million Britons now living in Dubai alone.

“And that's why we've introduced the idea of the Britannia card, a one-off payment for non-doms to come back, settle here, and pay all the relevant tax on their UK income,” he explained.

Reform have said that all fees received from the card will be distributed, ‘Robin Hood-style’, to the 2.5 million lowest-paid workers in the UK.

Reform describe the Britannia Card as “a bold, world-leading initiative designed to welcome internationally mobile wealth creators to Britain – on fair and beneficial terms”. A party website explains that, “for a one-time contribution of £250,000, successful applicants will receive a 10-year renewable residence permit and a favourable UK tax status. This includes taxation on a remittance basis only, no tax on international income, gains, or wealth, and no inheritance tax”. (The IHT exemption seems to include UK assets too.) “It’s not just a tax status – it’s a social contract,” they boast.

The policy has faced criticism. Rachel Reeves labelled it a "tax cut for foreign billionaires". Stuart Adam of the Institute for Fiscal Studies said it was "far from clear" whether the proposal would be positive or negative for the public finances overall. Dan Neidle of Tax Policy Associates has published a detailed critique which identifies what he argues are three “very serious problems with the policy”:

• that it would discourage highly skilled professionals who can’t afford the £250,000 from moving to the UK
• that frequent changes in this policy area mean any government would struggle to persuade the very wealthy that the “Britannia card” would really provide a lifelong exemption, so take-up would be limited
• that the card would provide a large and expensive tax windfall to a small number of very wealthy people who are already here (OBR data suggests this would add up to £34bn of lost revenue over five years, he reckons)

Farage launches fierce defence of ‘the wealthy’

In his speech this week, Farage launched a strong attack on ‘hard left’ proposals for higher taxes on the wealthy.

Those that are wealthy with assets are fleeing the UK, he warned. “They're scared of wealth taxes. But what they're even more scared of is retrospective tax changes.” He added that such people were additionally scared now of the idea of an exit tax.

Young professionals “caught in the £100,000 a year tax trap” and young entrepreneurs “who want to get on” are leaving the UK, Farage claimed. He lamented the “hard left socialist dogma that it's popular to tax the rich, that the rich won't move, they'll stay and pay more” which he said “has infected virtually the entirety of our political class”.

His position was clear: “I want as many high- earning people as possible living in this country and paying as much tax as they legally have to because if the rich leave and the rich don't pay tax, then the poorer in society will all have to pay more tax. It's as simple as that.”

Working party will look at tax simplification

Could the UK tax code be cut by 98%? Reform think it’s a possibility and are setting up a working group to look at it.

Nigel Farage wasn’t the only Reform leader to make a speech this week. His deputy leader Richard Tice spoke to a business audience in the City on Wednesday and announced that Reform is setting up four working groups on key economic areas. One will be on tax. Another will be on pensions and savings. The other two will be on SME growth finance and on regulation and the Bank of England’s mandate.

The tax group will look at simplifying Britain’s tax laws. “We are lucky enough in this country to enjoy the largest tax code in the world,” said Tice. “A mere 24,000 pages.” He compared this unfavourably to “countries like Hong Kong that have, give or take, 300 page tax codes” and other countries with “a sort of flatter tax system”.

Tice posed the question: “Is it possible to turn a 24,000 page tax code into something, give or take, 500 pages over one… or two parliamentary terms? Is that possible? If so, what have you got to do? What does it look like? It might not be. But if you don't ask these questions… We know we're over taxed. We know it's too complicated.”

In his speech, Tice said the working groups are going to be run by the new Centre for a Better Britain think tank. While the thinktank is known for being Reform-friendly, the groups would operate independently of Reform, said Tice. He invited “great people, great minds” to come forward to join the groups.

Tice comments show tensions on tax cuts

Remarks made by deputy leader Richard Tice on Wednesday show how difficult it will be for Reform to hold the line on its new, more fiscally cautious stance.

Responding to questions after his Bloomberg speech on Wednesday Tice told his audience: “we’ve got to get rid of inheritance tax”. He said this was essential in order to keep people in the UK and in order to attract people back into the UK. Party sources later stressed that Tice had said only that it was an “ambition” to abolish IHT.

Labour picked up on Tice’s line about moving toward a “flatter” tax system, claiming it meant Reform wants big tax cuts for high earners. While it is clear that at this stage it does not constitute a policy for the party it nevertheless highlights the tricky balance the party is trying to maintain, projecting fiscal responsibility while keeping its supporters on board by keeping radical policy possibilities in the frame. At some point between now and the election the party will need to choose whether to abandon fiscal caution or disappoint chunks of its support.

Elsewhere in the speech Tice signalled that the pensions and savings working group would look at whether cash ISAs should be scrapped. “Why should we give tax relief to leave your money sitting in cash?” he asked.

Green levies would be scrapped

Reform remains committed to scrapping all “net zero subsidies”, Farage told his audience this week, also repeating a commitment to scrap the Energy Profits Levy. He argued the party’s policies would cut £165 a year off average household electricity bills.

At last year’s election Reform promised to scrap VAT on energy bills, all environmental levies and all net zero subsidies. The party also promised to scrap what it called an “annual £10 billion of renewable energy subsidies” by putting equivalent taxes on them. This was in addition to starting fast-track licences of North Sea gas and oil.

These policies appear to be still in place, with Farage vowing this week to “scrap all net zero subsidies”. He also promised to “get rid of the insane North Sea taxes put on by Jeremy Hunt and that have been added on the top by Rachel Reeves.”

He likened the drive to cut carbon emissions to “a new religion”, naming Tony Blair, David Cameron, Theresa May, Ed Milliband and Boris Johnson as among those responsible. “Somehow, they all seem to think they're saving the planet,” he reflected. “The truth is, what they're actually doing is they are exporting carbon dioxide emissions to manufacturers in companies that operate under lower environmental standards.”

Reform promise government of experts

With a 10 point lead in the opinion polls, increasing attention is being paid to what a Reform government would look like. As well as the policies they would implement, the style and approach the party would take to government is being scrutinised.

The party has no official Treasury spokesperson but Richard Tice is widely thought the likeliest putative chancellor, though Zia Yusuf is also spoken of as a possibility.

In his speech on Monday Nigel Farage lamented both the frequence of changes of minister in government and the appointment of ministers without experience in the relevant policy area: “People whose only qualification is to be a member of parliament. As if that's enough, as if that's enough to give a lead, to give a guide over all the things that really matter in our life.”

Farage promised “that Reform will not just think differently but Reform will do differently. We will sweep away these outdated conventions. We will become the most pro business pro- entrepreneurship government that has been seen in this country in modern times. will bring into government as advisers or ministers people with real business expertise in their own sector.”

How different this would be from previous appointments of business people, ex-military and other previous non-politicians as ministers in the Lords (such as Gordon Brown’s ‘government of all the talents’ initiative) is anyone’s guess. However, with just a handful of MPs now, a Reform government, if one were to be elected, would almost inevitably be full of faces new to politics (notwithstanding that some defectors from other parties, such as Danny Krueger, might find their way into it), whether in the Commons or in the Lords, where one imagines the party would rapidly make a swathe of appointments, further swelling the size of the upper house. It would be an unprecedented scenario.