Nadhim Zahawi, who took over as chancellor last week, used a leadership speech on Monday to announce tax policies estimated to cost £50bn a year, almost as much as the combined budgets of the Ministry of Defense and the Foreign Office. Sajid Javid, the former health secretary who was also chancellor, launched his bid for the leadership with tax cuts he said would cost around £40bn a year, including cutting income tax, scrapping the recent rise in national insurance and a temporary 10p. one liter extra reduction in fuel tax. Of the 11 candidates vying to become the new prime minister, almost all have made ample pledges to cut the tax rate and shrink the state, with the cost generally remaining unclear. The pound has fallen to a two-year low in recent weeks amid growing concern about the strength of the British economy and political instability amid a sharp squeeze on households and businesses. Economists said the proposals would risk fueling inflation and inequality, while increasing government borrowing or requiring sweeping spending cuts. Rishi Sunak’s camp believes some of the promises would lead to a fiscal black hole of tens of billions of pounds. Nick Macpherson, a former top Treasury mandarin, said the candidates appeared to be “less the heirs of Margaret Thatcher. more the students of Recep Erdogan,” referring to the Turkish president’s economic policies, which have been blamed for contributing to inflation that is running at nearly 80 percent. Gavin Barwell, a Conservative peer who was Theresa May’s top aide, said leadership candidates risked telling the Conservative party “what it wants to hear” rather than the truth. “You can’t have Thatcher levels of taxation and Johnson levels of public spending – especially given the damage Brexit has done to the economy and the increased demand for public services post-Covid,” Barwell tweeted. Labor said multi-billion pound promises had been “thrown haphazardly onto the pages of newspapers” within days. Pat McFadden, the shadow chief secretary to the Treasury, said: “Tax cuts must be sustainable. They can’t just come out of thin air. They claim they can fund them through efficiencies or cuts to civil servants. Next up will be the tooth fairy. If Labor made promises like this, we’d be dying for it.” A range of candidates have said they will scrap a planned rise in corporation tax due next April from 19% to 25%, with Javid promising to reduce the basic rate to 15% over time. According to HMRC’s ready calculation tables, which provide rough estimates of the cost of tax changes, a 10 percentage point cut would cost £32 billion a year until the end of the current parliament in 2024-25. Another candidate, Attorney General Suella Braverman, used her speech Monday to say that much public spending could be replaced by a greater role for families and communities. Zahawi promised to cut income tax by 2 p.m. by 2024, scrap the rise in corporation tax and scrap VAT and green fuel levies for two years. The former education secretary said his plans could be paid for by cutting the number of civil servants by 20%, although this is estimated to save less than a tenth of the cost of his proposed tax cuts. Under Zahawi’s pledges, Torsten Bell, head of the Resolution Foundation thinktank, estimated that changes to income tax, energy bills and corporation tax would total £50bn a year by 2024. That’s just £5bn £ less than the budget of the Ministry of Defense and Ministry of Foreign Affairs. Jeremy Hunt, another former health secretary, has promised more than £30bn worth of tax cuts, including reducing corporation tax to 15%. Liz Truss, the foreign secretary, has also pledged to “cut taxes from day one” by reversing the rise in national insurance and pledging to “keep corporation tax competitive”. It appears Sunak, the former chancellor and frontrunner, launched a coded attack on opponents who are offering unrealistic tax and spending plans, describing them as “comfort tales” that would ultimately burden future generations. Subscribe to the Business Today daily email or follow Guardian Business on Twitter @BusinessDesk George Dibb, head of the Center for Economic Justice at the centre-left thinktank IPPR, said the plans did not match the needs of families struggling with the rising cost of living. “These tax cuts are no longer promising as a way to deal with the cost of living. It’s more of an arms race to win over members of the Conservative party and it’s completely divorced from reality.” If the government wants to avoid higher levels of borrowing, sharp spending cuts will likely be made despite public support for ending austerity and new investment in public services, he said. “My concern would be that we are seeing a significant shrinking of the state already in the last 12 years of Conservative government through austerity. I don’t think there’s much efficiency in getting out of the system,” he said.
