IFS: Sunak’s pledged Income Tax cut smaller than his tax rises as chancellor
Rishi Sunak’s newly unveiled promise to cut the basic rate of Income Tax from 20p to 16p by the end of the decade is smaller than the tax rises he made as chancellor, according to an influential economic think tank.
The Institute for Fiscal Studies (IFS) today also said the tax plans of Sunak and Tory leadership opponent Liz Truss were now similar in “direction of travel” and that “the biggest difference between the two candidates’ tax plans is one of scale and timing”.
Sunak made his new Income Tax pledge last night in a bid to make up ground on Truss, who has large poll leads among party members and is a strong favourite to become Tory leader and Prime Minister.
Sources close to the foreign secretary today said Sunak had performed a U-turn with his new Income Tax pledge, with Truss ally Simon Clarke saying that “Liz will cut taxes in seven weeks, not seven years”.
The former chancellor has called Truss’ plan to implement £30bn+ in immediate tax cuts as “fantasy economics” that would further stoke the UK’s 40-year-high inflation rate.
The IFS said Sunak’s plan to cut the basic rate of Income Tax from 20p to 19p in 2024 would cost around £6bn a year and that the cut to 16p by the end of the decade would cost a further £19bn annually.
However, IFS senior research economist said the cuts would be “much smaller than the tax cuts Ms Truss is proposing, and indeed less than half the size of the tax rises he announced as chancellor”.
Sunak hiked National Insurance, froze Income Tax thresholds and mapped out Corporation Tax rises for the most profitable UK firms as chancellor.
Truss has pledged to cancel the Corporation Tax hike and overturn the National Insurance hike.
The think tank also noted that Truss and Sunak’s plans would likely lead to a reduction in spending or a break in the government’s fiscal rules, which state that day-to-day spending must not be funded through borrowing.
“Both candidates seem content to borrow more to pay for their tax cuts, albeit on different scales,” Stuart said.
Commenting on his tax plan, Sunak said: “What I’m putting to people today is a vision to deliver the biggest income tax cut since Margaret Thatcher’s government.
“It is a radical vision but it is also a realistic one and there are some core principles that I’m simply not prepared to compromise on, whatever the prize.”
Ballot papers for the leadership contest will go out to Tory party members this week and will need to be returned by the end of the month.
The party will announce the winner of the leadership contest on 5 September.
In a letter to members today, Truss said: “We cannot continue to have business-as-usual and I have a bold plan to get our economy back on track.
“We must reject orthodoxy, the voices of decline and unleash Britain’s potential in line with Conservative values.”