IFS: Johnson’s tax cut pledges will cost billions
A bonanza of tax cuts promised by Boris Johnson will cost billions of pounds, an influential research group has warned.
The Prime Minister’s pledge to raise the threshold of National Insurance contributions (NIC) and higher-rate income tax has come under damning criticism from the Institute for Fiscal Studies (IFS), which said this morning that the policies would come at a hefty cost.
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Amid economic uncertainty and a swathe of public spending promises, “promising tax cuts in the short run looks risky,” the IFS said in a report funded by the Nuffield Foundation.
“If you are going to spend that much cutting taxes for those on high incomes or supporting low earners, you could find much better ways of doing so than the policies proposed by the Prime Minister,” said Xiaowei Xu, a research economist at the IFS.
The promise to raise the threshold for the higher rate of income tax from £50,000 to £80,000, which Johnson made during his leadership campaign in June, would cost £8bn a year at current prices, the IFS has forecasted.
Downing Street’s pledge to hike the point at which people start paying NIC to an as-yet unspecified amount would cost £3bn for every £1,000 rise to employee and self-employed NICs, or £4bn if the employer NICs threshold were raised in tandem.
Raising all NICs thresholds to match the current income tax personal allowance of £12,500 would cost £17bn, the IFS said.
Xiaowei Xu added: “Cutting NICs to help low earners is a particularly blunt instrument – raising work allowances in universal credit would deliver far higher benefits to the lowest-paid for a fraction of the cost.”
Matthew Lesh, head of research at the Adam Smith Institute, said: “Raising the income threshold will help boost the economy, support aspiration and entrepreneurship and return more of people’s hard-earned money to their pockets.”
He added: “Income tax cuts not only boost growth by enabling consumption and innovation, they also encourage risk-taking, entrepreneurship and innovation — making everyone better off.”
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Along with tax cuts, Johnson has made a number of spending pledges in recent months, including billions of pounds in extra funding for schools and hospitals.
Labour leader Jeremy Corbyn also set out broad spending plans at party conference last week, including a multi-billion pound package to help develop electric cars and a 32-hour working week.