Candidates’ false promises on tax cuts


The ongoing competition to become the next UK prime minister has led to all candidates promising to cut down the tax because as Boris Johnson put it, “that is the way to generate growth and the income to pay for great public services.” These promises however are “fairy tales” that would only result in more public debt.

Dealing with the massive pandemic spending, Johnson lifted the overall tax burden to deal with the public finances. Candidates are now lining up billions of pounds of tax cuts to induce support from Conservative Party members.

While tax cuts can lead to increased economic activity, the generated revenue will usually not be enough to neutralize the loss of income directly forced on the Treasury. In the short term, there may be some room for such public promises but in the long term, the public finances are on a fleeting, unsustainable path.

Leaving each tax rate increase forces the government to deal with a heavy price tag. Cutting April’s payroll tax increase will cost around £18 billion, Abandoning the 6% increase in corporation task will cost about £16 billion, and cutting income tax by 1% would cost around £6.5 billion.


Bloomberg calculations indicate that former Health Secretary Sajid Javid demands £40 billion of tax cuts, Foreign Secretary Liz Truss up to £34 billion, Chancellor Nadhim Zahawi £32 billion and Transport Secretary Grant Shapps £22 billion, former Health Secretary Jeremy Hunt plans about £20 billion, chairman of the Foreign Affairs Committee Tom Tugendhat around £18 billion, and former Development Secretary Penny Mordaunt about £5 billion.

It is believed that the public finances are currently in a good position only because of the considerable tax rises during the wake of the pandemic. 4 months ago the difference between the required cash resources and the available cash resources was estimated at around £30 billion but due to the worsened economic situation, the headroom is extremely at risk and is being rapidly eroded.

Inflation is currently pressuring pay which will destruct the base value of the mentioned budgets as they were set back in October when the government tough the inflation rate was going to be closer to 4% rather than what the Bank of England is now forecasting.

By the next couple of years, the Health and Social Care Levy, the increase in Corporation Tax, and the freeze to income tax thresholds will bring in massive sums of money every year. Therefore it is suggested that it will be very difficult for the next prime minister and their chancellor to make any tax cuts.

The inflation is on course to hit 11% and many businesses are losing profits and households are terrified of making ends meet. While the additional tax cuts can bring on support to these groups of the society, there is an obvious risk of making inflation worse and forcing the government to raise interest rates more strongly.

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