If you didn’t know that Boris Johnson was the front-runner in the Conservative leadership election, the reaction to his main tax cut proposal might give you a clue. He has been monstered for proposing that the threshold for the 40p income tax rate be raised to £80,000. Two main objections have been raised to the plan. The first is that such a move would be bad politics, reinforcing a Tory reputation for being “the Party of the rich”. The second is that it would be bad economics. Johnson proposes to fund the reduction from the £26.6 billion of “fiscal headroom” confirmed by the Office of Budget Responsibility in March. But the Institute for Fiscal Studies says that this sum would not sustain a long-term tax giveaway.
On the politics, it’s worth noting that Sajid Javid has floated scrapping the top rate of tax altogether, but has drawn nothing like the fire directed at Johnson: that would doubtless be different were the former the favourite in this contest. On the economics, there should surely be a limit to the number of people who are fiscally dragged, so to speak, into paying the higher rate. If Johnson’s leadership rivals disagree, they may want to remember that they have applied this principle themselves – since they all supported Philip Hammond’s honouring, last autumn, of the pledge to raise the threshold to £50,000 contained in the Conservative manifesto they stood on two years ago.
None the less, the Chancellor raised the threshold for the basic rate at the same time – and our take is that it would be very odd to concentrate tax cuts only on the richest ten per cent of households (who just happen to be well represented in this Tory leadership election). Nor does this site swallow the snake oil of the supply siders who suggest that tax reductions always pay for themselves. Tax cuts march in step with spending control, or should do.
But if that truth poses a challenge for Johnson, it does so too for the other candidates – and applies to proposed spending increases as well as floated tax cuts. Needless to say, the former, which usually stand on no firmer financial foundation than the latter, have attracted nothing like the same criticism. And all in all, the mass of tax and spending pledges provoked by this contest – heaped on top of new Brexit policies that are unlikely to pass through Parliament – are piled higher than their credibility can sustain. They help account for the air of unreality that wafts around so much of it.
The candidates who are coping best, in this sense, are those who have made minimal commitments to date (such as Mark Harper, Andrea Leadsom and Rory Stewart, though the latter’s proposed National Citizenship Plan would presumably cost a bit) – or who have set out where the money for their plans would come from (such as Esther Mcvey, who would take cash from the international development budget to fund more spending on schools and police). We apologise for not being swept away by the carefree mood that surrounds “the end of austerity”, as Theresa May described the Government’s economic plans last year. But we suspect the old truth applies: spend in haste, repent at leisure.