Potential PMs jostle for tax supremacy
As the race for the Tory party leadership gets serious candidates have turned to tax to boost their leadership credentials, engaging in a tax arms race.
AccountingWEB editor Tom Herbert outlines the pin-stickers guide to the tax policies of our potential prime ministers, and how they plan to fund them.
Blue-rinse bonanza: The be-mopped bookies’ favourite has stated that he’ll raise the higher income tax rate threshold from £50,000 to £80,000.
The change would cost around £10bn a year, according to Johnson, who plans to fund the bill through a national insurance rise and Philip’s Hammond’s £26.6bn ‘fiscal headroom’. During the last budget, the Chancellor stated that government borrowing had come in lower than expected, but some of this had been earmarked for no-deal Brexit planning.
However, IFS chief economist Paul Johnson (no relation) disputes the funding claim. On Twitter, the economist stated that: “Claims tax cuts are ‘funded’ by headroom against borrowing target are absurd. They are funded by higher borrowing or by lower spending. That’s it.”
Wealthy pensioners, who don't pay national insurance, stand to benefit the most from the plans: up to £6,000 each according to analysis from the Institute for Fiscal Studies (IFS). Boris Johnson has also hinted that he wants to cut stamp duty on homes, stating it is “absurdly high”.
Race to the bottom: The foreign secretary has attempted to outline his pro-business credentials by announcing plans to cut corporation tax from 19% to 12.5%.
This would continue a trend that has seen the UK reduce its main rate of corporation tax from 28% in 2010 and match Ireland as having one of the lowest corporation tax rates in the world.
Hunt argues that cuts could boost revenue if more businesses relocate in Britain, and companies use the additional funds to invest, employ more staff or increase workers’ wages. However, despite the UK’s falling corporation tax rate business investment still lags behind other developed economies and fell in every quarter of 2018.
Corporation tax cuts can also be expensive: Hunt’s proposal could cost Britain as much as £13bn, according to the Resolution Foundation.
Simple sales tax: Away from his recreational activities, the environment secretary has been making headlines for his proposal to scrap VAT and replace it with a “lower, simpler, sales tax”. While eagle-eye AccountingWEB readers may have spotted a way out of Making Tax Digital for VAT, the wider implications of Gove’s plans have also come gone under the microscope.
While no specific details have emerged about Gove’s sales tax, in broad terms the difference between VAT and a sales tax is the fact that a sales tax only applies when an item is finally sold to a consumer. Under VAT, businesses have to pay the tax when they sell goods to one another and then claim the tax back on purchases.
While Gove claims a system of sales tax results in less administration and greater productivity, experts have pointed out that businesses may claim to be selling products to other businesses (rather than consumers) in order to evade the new tax.
The IFS claims evasion fears have led to every country in the Organisation of Economic Co-operation and Development (OECD), apart from the United States, move away from a sales tax and towards VAT.
Cutting crew: The former Brexit secretary plans to cut the basic rate of income tax from 20% to 15% and raise the point that people start to pay national insurance so it is the same as income tax (ie £12,501 a year).
Under Raab's plans, the basic rate of tax would fall by a penny a year until it reaches 15p. This would prove expensive: the IFS states that it costs about £5bn for every 1p cut in the rate of income tax, and Raab’s national insurance plans could eventually cost £10bn.
Like Boris Johnson, Raab intends to fund his giveaways via the government's £26.6bn "fiscal headroom". Therefore, he will need to find other means of funding his tax cuts to keep them sustainable in the long term.
Low-tax kinda guy: The home secretary wants to wipe out the 45% additional-rate tax band on incomes above £150,000. This move, Javid argued in an interview with the Telegraph, would improve the “dynamism” of the economy and generate billions of extra revenue for public services.
However, his opponents argue that implementing a policy that would benefit the top 2% of taxpayers would hand Jeremy Corbyn the keys to Downing Street.
Javid has also signalled an openness to cut the basic rate, calling himself a “low-tax person”.
Gambling on the small business vote: The health secretary has vowed to ‘level the playing field’ for small businesses by scrapping business rates for small retailers and hitting Amazon and other big firms with a new digital services tax.
The former Bank of England economist has also announced plans to raise the national living wage to £10.21 by 2022 and to implement a tax on gambling firms’ profits.
According to Hancock, his policies will be funded by Philip Hammond’s £10bn Brexit buffer.
Policies gone walkabout: While the international development secretary has gained notoriety for his Twitter walkabouts, unusual career path and opiate consumption, Stewart has also garnered the approval of tax mavens for stating that he would draw on principles set out in the Mirrlees Review.
While he is yet to spell out any specific measures, writing in the Financial Times last week Stewart stated that he would mandate the Treasury to present a plan for the simplification and modernisation of the UK tax system by 2022-23.