Sunak pledges 4pc income tax cut
Rival leadership camp calls ex-chancellor’s move to ease burden for millions a tactical ‘flip-flop’
‘Liz will cut taxes in seven weeks, not seven years’
‘It’s only a shame he didn’t do this as chancellor when he repeatedly raised taxes’
RISHI SUNAK has promised the biggest income tax cut in 30 years, vowing to slash the basic rate from 20 per cent to 16 per cent if he becomes prime minister.
In a major announcement as he battles to close the gap with front-runner Liz Truss, the former chancellor pledged to deliver the change by the end of the next parliament.
The move would see millions of households paying a fifth less in income tax. Someone earning the average UK salary of £32,000 would save about £777 under the plans.
Mr Sunak’s campaign argued the move was consistent with his previous stances, given the tax cut would only be adopted once inflation drops and would not be funded by borrowing.
But a Truss campaign source dubbed the move a “flip-flop” aimed at winning votes among Tory members after three weeks of fiercely criticising rivals for promising major tax cuts.
Mr 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.”
But Simon Clarke, the Chief Secretary to the Treasury who is backing Ms Truss and held the post under Mr Sunak, countered: “Liz will cut taxes in seven weeks, not seven years.”
Postal ballots in the race to replace Boris Johnson as Conservative Party leader and prime minister start being sent out today, giving Tory members the chance to vote early before the result is announced on Sept 5.
The campaign battle so far has been dominated by differences on economic approach between Mr Sunak and Ms Truss, the Foreign Secretary, most notably on taxation.
Mr Sunak had argued bringing down inflation should be the priority, insisting big tax cuts must wait. Ms Truss has vowed tax cuts this year to trigger economic growth, paid in part by more borrowing.
Now Mr Sunak, who is consistently lagging behind Ms Truss in opinion polls of Tory members, has unveiled a promise to deliver a major personal tax cut if he wins.
The former chancellor while in the Treasury had promised to cut the basic rate of income tax from 20 per cent to 19 per cent by 2024, with the change already government policy.
He is now promising to drop that to 16 per cent by the end of the next parliament – meaning the period between the next general election and the one after that.
It is the second major tax cut announced by Mr Sunak in a week, coming after he vowed to scrap VAT on household fuel bills for a year. He is also promising a major new investment tax cut this autumn, replacing the so-called “super deduction”.
The timing of the tax cut in part depends on when the next election is held. If it takes place in May 2024, as expected, the next parliament could run to 2029, though it may end sooner.
Mr Sunak hopes to drop the basic income tax rate by one percentage point each year from 2024, according to a campaign source, meaning it would hit 16 per cent around 2027.
It costs around £6 billion for every percentage point drop in the basic income tax, meaning the extra three percentage point reduction being promised would cost £18 billion.
It would be the largest cut to income tax since the late 1980s when Lord Lawson slashed the basic and higher rate when Mrs Thatcher’s chancellor.
High earners will save less proportionally than low earners from the change, given some of their income falls into the higher income tax rate of 40 per cent, which Mr Sunak is not proposing to change.
The Sunak campaign is arguing the cut will be funded by extra tax revenues generated by the economic growth currently forecast between 2024 and 2027 and will not involve more borrowing.
Mr Clarke said: “People are facing the biggest cost of living crisis in decades and the tax burden is at its highest level in 70 years. We cannot afford to wait to help families, they need support now.”
A Truss campaign source said: “It’s welcome that Rishi has performed another U-turn on cutting tax, it’s only a shame he didn’t do this as chancellor when he repeatedly raised taxes. Unfortunately it’s a case of ‘jam tomorrow’. People need tax cuts in seven weeks not in seven years.
“The public and Conservative Party members can see through these flipflops and U-turns.”
Even though the winner of the Tory leadership contest is not due to be announced until Sept 5, the ballot papers are being sent out to members from today. The reason for doing so more than one month in advance is in case there is a postal service strike or continued problems with deliveries. This is understandable, but it runs the obvious risk that voters will send their ballots off early and then go on holiday.
Many of the estimated 160,000 Conservative members have indicated they have already made up their minds even before the hustings have really got under way. The candidates themselves, mindful of the prospect of early voting, have crammed as many pledges as possible into their first few days of campaigning.
Many activists observe that plenty of Ministers and backbenchers have already endorsed their favoured candidate without hearing what they have to say over the next five weeks.
The MPS may argue that they know them already, whereas the whole point of this exercise is to introduce them to the membership at large. But it makes a mockery of such a protracted process if a sizeable proportion of the electorate has voted with a month still to go.
Judging by the polls, if a vote were held tomorrow the likelihood is that Liz Truss, the Foreign Secretary, would win. But Rishi Sunak’s supporters say that the more the members see of him, the greater the backing he receives. Moreover, surveys of members are notoriously hard to conduct in any meaningful way and the two candidates might be closer than is fully appreciated, with a sizeable number undecided.
As Lord Young of Graffham says on this page, below, members should let the contest play out as far as possible.
Even now, the pledges keep coming with Mr Sunak saying that the basic rate of income tax will fall from 20p to 16p by the end of the next Parliament under his premiership. This makes a lot of questionable assumptions but illustrates the point that the contest is far from over.
Should something dramatic occur during the campaign, the rules allow for people who have already voted but changed their minds to register a second vote online, which will be the one counted.
But it would be better if members stay their hands to hear the arguments before making such a critical decision that matters not just for the Conservative Party but the country as a whole.