Will it work? Tax and benefit cuts
It’s an election year. Politicians are giving us a barrage of policies. But we often forget to ask the most important question: will they actually work? In this column Sam Fowles take policies on their own terms and asks whether they solve the problem they’re supposed to solve.
Rishi Sunak has made tax cuts the centrepiece of his election campaign. So it’s only fair to ask: will it work?
What’s the Plan?
Tax cuts, paid for by welfare cuts. National insurance will be cut by 2p for employees (costing approximately £10bn over five years) and eliminated entirely for the self-employed (costing £2bn). The money will come from £12bn of cuts to (mainly) disability benefits.
Reasons to Get Excited
We’re all getting more money! But perhaps not quite as much as Sunak and co make out. The Conservatives claim the average worker will benefit to the tune of £450 per year for employees and £1350 for the self-employed. This relies on some tricksy accounting. The Conservative’s hid the impacts of already planned freezes to income tax and NIC thresholds. The real benefit is likely to be £260 for the average employee and £1230 for the average self-employed worker. Much less than promised but better than nothing.
Cause for Concern
The plan to pay for these tax cuts seems to rely on some magical thinking. New disability benefit claims doubled between 2021 and 2022. The total bill is around £15bn per year. Research by the Health Foundation shows Britain is getting sicker for three key reasons: First, the availability of healthcare is decreasing. NHS waiting lists more than doubled between 2008 and 2024, currently standing at 7.5m, with many people waiting more than a year (particularly for chronic conditions like hip and knee surgery – which have a major impact on the ability to work). Second, debilitating mental health conditions have increased, particularly among young people, largely driven by disrupted education and repeated crises. Third, social deprivation and disease. People are getting unhealthier because it’s more difficult to access healthy food, good housing, and opportunity to exercise.
Does it add up?
Sunak and Co seem to believe they can cut the benefit bill just by wishing away the causes of the public health crisis. But economies don’t work in siloes. In reality, the Conservative plan will just transfer the costs of the crisis to places where they will be more economically disruptive.
People who need help with their health will be forced to work while ill or give up on work altogether. This will drive down productivity at a time when historically low productivity is already one of the main causes of the UK’s economic stagnation (those in Labour, who see the NHS purely as a “cost” item, should also take note). Many more will be plunged further into poverty. The costs of this will be picked up by parts of society which are already overstretched. Local government and the courts will be forced to deal with more people who can’t pay their rent. Charities and food banks will be put under greater strain. More people will have to drop out of the workforce to take on unpaid caring responsibilities. And that’s just the start. The ultimate result will be a further suction of demand out of the economy, lowering the potential tax take and making it more difficult for businesses and the high street to thrive. In other words: all the same problems we’ve been dealing since the last time government tried to combat an economic slowdown by cutting benefits.
What’s the verdict?
It’s an attractive headline but the emperor has no clothes. The Conservative plan is a recipe for more of the same stagnation we’ve endured for the last decade.
Scores on the Doors
Electoral appeal: 3/5
Value for money: 1/5
Effectiveness: 1/5
Originality: 0/5
Overall: 5/20