Conservative candidates’ tax cuts: a boost for the rich and a drag on us all | Cary Roberts

0

AA foreigner listening to the debate between the Conservative leadership candidates might think that the only problem facing the country is too high taxes. Never mind the soaring temperatures, a symptom of the climate emergency, or the average wait for ambulances in England of 51 minutes against a target of 18 minutes. On these matters, those vying to be our next prime minister have had much less to say.

Policies undertaken have included canceling the planned corporate tax hike or cutting the rate even further; raising income tax thresholds; and faster reductions in the basic income tax rate. With the exception of Rishi Sunak, who said he would wait before cutting taxes further, the background music cuts taxes from day one. We are told this is the best way to revive the UK economy and thus put the country’s finances back on a sustainable footing. Tax cuts are also being touted as a way to put money in people’s pockets to help them deal with the cost of living crisis.

But there are several gaping holes in this approach which mean it is unlikely to survive coming into contact with UK economic reality. Considering the cost of living crisis first, the tax cuts on the table are an incredibly inefficient way to get money to those who need it. The government has already planned a penny reduction in the basic income tax rate, which all candidates support at a minimum. But IPPR analysis shows that it will cost the Treasury £5billion, more than half of which will go to the wealthiest fifth of households. It would be much more effective to strengthen the support offered to low-income people through the benefit system.

What about the conservative belief that taxes hold back economic growth? Sadly, there is little evidence that the only thing standing between the UK and a prosperous economic future is lower taxes on business profits. In fact, we’ve tried it over the past decade: the headline corporate tax rate has been cut successively from 28% in 2010-11 to 19% in 2017-18, but that hasn’t delivered the business investment or economic success promised. . The UK remains at the bottom of the pack when it comes to business investment, as businesses invest when they see future opportunities for growth – for example decent and growing incomes, infrastructure and transport, and skills policy – and not changes in marginal tax rates.

Perhaps more importantly, cutting taxes permanently has consequences – and would require state cuts. The problem is that there is nothing left to salvage, after the decade of austerity that people, communities and services across Britain have endured. And we face huge challenges that are coming down the track fast. We urgently need to decarbonize our homes, transport and industries to achieve zero emissions, and do it fairly. Health services are stretched to breaking point, with many people are retiring from the NHS in England as they struggle to access care, and the number of people needing health services at any given time is only going to increase. The deep economic inequalities between regions and places in the UK – which leveling was supposed to talk about – show no signs of diminishing and deepen in some cases.

All of these challenges require more than money to meet; but a well-resourced state is essential to tackle all of them. A party determined to engage in a race to the bottom on taxes will fail to provide the answers.

That’s why several of the candidates said they would finance the tax cuts through borrowing, rather than identifying where they would cut. Sunak scathingly called it “saving something for nothing,” which would cause inflation. He is half right. The government has some space for additional spending or tax cuts – but with inflation as high as it is, he will have to use that space wisely, rather than on tax cuts that benefit those at the top without stimulating the growth. Much better to use it to provide direct support to the most vulnerable, increase energy cost support and invest in renewable energy and insulation to lower bills today and help achieve our net zero goals. To reduce the risk of inflation, tax wealth and income at the top.

Ultimately, evaluating leadership candidates on their economics is like evaluating a cat at a dog show. The debates of the last fortnight, and probably the coming summer, are intended to score political points, and ultimately to rally only 358 Conservative MPs and 180,000 Conservative Party members. But, while the tax cuts might delight backbench MPs, Tory MPs tend to lean toward the center economically compared to the parliamentary party. More importantly, the British public is much more concerned about big issues that must be settled than a reduced tax bill. Moreover, unfunded tax cuts without a plan for a stronger economy risk looking fundamentally unserious and opening up a space on economic competence for Labour. To win the next election, the next Conservative leader may find himself – as many party leaders have – wanting to walk away from political promises made in the heat of a leadership race.

Share.

Comments are closed.