Jeremy Hunt has put forth a number of policy proposals, the reduction of corporation tax, raising the point at which one would become liable for NIC’s, National Insurance contributions, elevation of defence spending and, most significantly, lowering the interest rate applicable to student debt, Presstv Reported.
Reducing the main rate of corporation tax, which is presently set at 19% to 12.5%, would mean a short term loss of £13 billion per annum. That this is a tax cut which will pay for itself, as has been suggested, by taking in increased revenue as a result of higher profits garnered, is highly unrealistic in light of the present tax base being so large.
Raising the NIC threshold may be a good way to help the lowest income bracket, albeit very expensive, costing at least £ 3 billion per year for each £1,000 increase, using a tax credit system would be vastly superior.
Increasing defence spending to 2.5% of national income, as put forth by Mr. Hunt, over the next five years, would entail spending £15 billion more in 2023−24 than today, and around £12 billion more than if spending remained at its current level of 2% of national income. Doubling defense spending as a proportion of national income, as Mr. Hunt has previously put forth, would cost more than £40 billion per year. Any significant increase would come as a drastic about-face from the situation which, for seven decades, paved the way for more spending on the welfare state, especially on health, without significant tax rises.
Cutting the rate of interest on student loans to equal the RPI rate of inflation would cost very little in the short run and just over £1 billion in the long run, though, only the highest earning 30% of graduates would benefit from such a policy.
His policies for higher spending and lower taxes would amplify the longer term challenges facing public finances in the UK, which already faces considerable spending pressures from an ageing population and rising health care costs.
Mr. Hunt’s combination of policy proposals would exacerbate these pressures and widen a gap in the public finances that will ultimately need to be filled through some combination of higher borrowing, tax increases or cuts to other areas of spending.
Boris Johnson’s proposal
Boris Johnson has put forth two main tax policy proposals, raising the income tax higher rate threshold (HRT) point from £50,000 to £80,000, and to raise the point at which people start paying National Insurance Contributions (NIC’s).
Increasing the HRT would cost £9 billion and would merely benefit the 4 million taxpayers in the top 10% of the income distribution, benefiting them by an average of nearly £2,500 a year. The biggest gainers will actually be high income pensioners who won’t be affected by the accompanying increase in the NI ceiling.
While only about 8% of individuals would gain from this change in the short run, probably at least a quarter will at some point be higher rate taxpayers themselves, or will live in a household with a higher rate taxpayer, at some point in their lives.
Raising the HRT to £80,000 straightaway would take about 2.5 million people out of higher rate tax, taking the number of higher rate taxpayers down to its lowest level since 1990. This would constitute a major change to the British income tax system.
Increasing the point at which people start to pay NICs is probably the best thing one can do through the tax system to help low earners, though even this policy offers most benefit to higher earners. Increases in tax credits would be significantly more effective if the main intention is to help low earners in low income households.
Increasing the floor is expensive though, costing at least £3 billion a year for each £1,000 that it is raised. Raising it to the current income tax personal allowance of
£12,500 would cost at least £11 billion and would take £2.4 million workers out of NICs altogether.
As is clearly demonstrated above there are very few differences between what Boris Johnson and Jeremy Hunt have proposed. In terms of benefits and the beneficiaries of the two gentlemen’s schemes on taxation and spending policies, seemingly so out of touch with the general population. It would appear that even these proposed policies have been authored by the same socioeconomic pen, somewhat akin to a sketch from the comedy program ‘Yes, Mr. Prime Minister’.
Whoever ends up in Number 10 will almost certainly be as unpopular as Mrs. May with the nation, but, the British, as a nation, may wonder if it would be too much to expect the next occupant of that illustrious address, 10 Downing Street, not to be as incompetent as the Thatcher wannabe he replaces?