Boris Johnson’s tax cuts plan could cost UK £20bn per year
Boris Johnson’s tax cuts plan could cost the UK up to £20bn per year, according to the Institute for Fiscal Studies (IFS) think tank.
The Tory leadership candidate has pledged to hike the threshold for higher rate income tax to £80,000 from its current £50,000.
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Replacing the 40 per cent tax rate with a 20 per cent tax on earnings up to £80,000 would cost the UK economy around £9bn per year, the IFS said.
Meanwhile Johnson has also mooted the possibility of raising the wage at which employers must pay the 12 per cent national insurance tax, which currently kicks in at an annual salary of £8,632.
Hiking the NI threshold by £1,000 would cost the government £3bn per year, however, the IFS warned.
Raising it to the income tax threshold of £12,500 could cost the government £11bn in lost tax income.
Together the total hits £20bn per year.
“It is not clear that spending such sums on tax cuts is compatible with both ending austerity in public spending and prudent management of the public finances,” IFS economist Tom Waters said.
The IFS argued that raising the higher rate tax threshold would mainly benefit wealthy pensioners rather than full-time workers, as pensioners do not pay national insurance.
Johnson’s Tory leadership race rival Jeremy Hunt said he will seek a corporation tax cut to bring the rate down to 12.5 per cent, from the 17 per cent at which it will stand in April next year.
He would also get rid of property taxes for small businesses.
The Office for Budget Responsibility (OBR) predict the UK to hit a £29bn budget deficit this year in the event of an orderly Brexit.
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The OBR added that it expects the UK to raise tax revenue of £811bn.
Chancellor Philip Hammond has urged both candidates to continue to keep the annual budget deficit below two per cent of GDP as well as continuing to cut debt as a percentage of the economy.