Analysis of the economic policies of the last three Tory nominees shows the Foreign Secretary could exacerbate the cost of living crisis
In a study of the economic strategies of the three remaining MPs battling to become Britain’s next prime minister, tax consultancy Blick Rothenberg found that Ms Truss’ tax cuts will take at least £40billion out of government coffers and increase national debt.
Liz Truss’s proposed tax cuts would put more money in the pockets of earners than their Conservative leadership rivals, but would also further fuel inflation and push interest rates higher, according to expert analysis.
Penny Mordaunt’s tax cuts would mean the more you earn, the more money you get and would cost the UK economy at least £24billion.
Meanwhile, Rishi Sunak, who is doubling down on his policies as Chancellor, would cost the economy no more money but households would have to wait until April 2024 for his 1p income tax cut.
If Ms Truss becomes Prime Minister and delivers on her tax cut pledges, someone earning £20,000 a year would save £1,579, while someone earning £50,000 would save £2,982, according to the analysis.
Anyone earning more than £140,000 a year would benefit more from Ms Truss’ cuts than anyone earning £20,000 or less, while those earning between £60,000 and £80,000 would save the least.
Ms Truss has also said she would introduce a temporary suspension of the green energy levy, which would save £153 on energy bills, and has hinted at scrapping the corporate tax hike from 19 per cent to 25 per cent.
She has also committed to a tenfold increase in the marriage allowance to £12,570, which a Treasury source says could cost that coffers around £8billion.
The marriage grant was introduced by David Cameron in 2015. It enables around four million married couples – and those in civil partnerships – to redistribute part of their personal allowances. Only couples where one spouse is a property taxpayer earning less than £50,271 and the other earns less than the £12,570 allowance threshold are eligible.
Nimesh Shah, managing director of Blick Rothenberg, said: “A new prime minister and his chancellor will have a difficult job ahead of them. The promise of wild tax cuts could be enough to bring new residents to Downing Street, but the cost will be staggering.
“While short-term tax cuts will offer working families some breathing space as they battle the cost of living, fiscal stimulus will no doubt continue to fuel inflation and do nothing to address the nation’s debt, which is as large as the size of the UK economy.”
Penny Mordaunt, who is in a bitter battle with Ms Truss to win second place in the Tory leadership and face the PM’s vote by party members, is also promising significant tax cuts.
High earners will benefit more from Ms Mordaunt’s tax cuts. Someone making £20,000 a year will save £289, while someone making £50,000 will take home an extra £664. Those earning over £100,000 will see their annual salary increased by at least £2,073.
Ms Mordaunt would also reduce VAT on fuel from 20% to 10%, saving £10 to fill up an average family car.
Taken together, Ms Mordaunt’s increase in the personal allowance and property tax threshold through inflation and the reversal of the social security increase will cost the Treasury at least £24bn.
While Chancellor Rishi Sunak vowed to cut income tax by 1p by April 2024, he has not committed to further cuts during the leadership campaign.
Freezing tax breaks by Mr. Sunak until April 2026, introducing the health and social security contribution of 1.25 percent, raising corporate income tax to 25 percent from April 2025 and cutting the relief for entrepreneurs from 10 million in the country for 70 years.
A few weeks into his role as Chancellor, Sunak crafted a £300billion pandemic support package, with his flagship furlough scheme earning him widespread applause.
Since then, Sunak’s star has faded and in its last Spring statement could only offer a 5p fuel tax cut and aligning the Social Security earnings floor with the personal allowance.
Mr Shah said: “The tax-responsible former Chancellor may not deliver the change the public wants, but it may be right for the long-term future of the UK economy.”