15% income tax may be just around the corner
Philip Fisher runs the rule over Dominic Raab's headline-grabbing pledge to cut the basic rate of income tax to 15% if he becomes PM and asks: can anyone see a downside?
This article should start with an apology, since it may be way out of date having been penned 24-hours before publication.
At the time of writing, there were still a meagre 13 Tory MPs (stop press - down to 11 this morning) who had formally confirmed they would be entering the race to become leader of the party and, by extension, Prime Minister. In the fullness of time, one imagines that this will increase to a healthily democratic number, perhaps a couple of hundred.
Ignoring the European question and the underlying politicking, the subject that will interest most accountants is the fiscal plans, to the extent that any of the prospective PMs realise tax is one of the areas which will come within their remit, should they have the misfortune to be elected to a poisoned chalice that has killed the careers of the last two incumbents stone dead.
One man who apparently knows his tax onions is Dominic Raab. However, even he might require the talents of the best magician in order to pull the promised rabbits out of his traditional Tory top hat.
The former Brexit secretary, a role that has at least given him experience of political appointments that are impossible to hold down, is already on the record as stating that he is a big fan of the most extreme form of European exit possible.
In order to increase his appeal, Mr Raab has additionally pledged to cut the basic rate of income tax to 15% and at the same time as increasing the NIC threshold to £12,500.
If that isn’t enough to win your vote, this columnist doesn’t know what will.
Can anybody see a downside? Well, Paul Johnson from the Institute for Fiscal Studies can. He has rather unkindly pointed out that these generous proposals will cost the Exchequer £40 billion each year.
While Dominic disputes these figures, he probably isn’t that concerned, since this Europhobe comes from the Boris Johnson school of economics, which believes Britain will benefit to the tune of tens of billions of pounds each year from exiting Europe.
While there seems to be no obvious statistical justification for such optimism at present and the vast majority of economists have expressed concerns that, at least in the early years, we will be greatly out of pocket following a cliff edge exit, voting for Raab at least promises great hope for the future, if you can believe the hype.
More importantly, this announcement should also set readers thinking about the consequences should various different candidates win the Tory leadership election.
There must be a very strong possibility that Philip Hammond will fall out of favour, given his strong support for a conservative (with the tiniest “c” imaginable) European transition and departure.
A change of Chancellor could spell the end of austerity and also lead to a completely new outlook on tax policy.
Without having a crystal ball as big as any prospective Tory leader’s ego, it is impossible to guess what an unknown Chancellor of the Exchequer connected to a new Prime Minister might have in mind.
However, the best bet is probably that almost everyone will go for headline-grabbing tax cuts, probably funded by a whole raft of stealth taxes that will undoubtedly be necessary to pay for them, especially if the projected euro hit exacerbates the tax black hole.
On the other hand, this might be a perfect time for a new set of eyes to completely revamp, simplify and perhaps even bring greater equality into an antiquated tax system that is in desperate need of an overhaul.
I leave readers to ponder an alternative future in which the new Prime Minister calls a general election and Jeremy Corbyn takes over with John McDonnell as Chancellor.
Whatever happens, there are fun times ahead so what this space for future developments.