‘We’d look like the party of the wealthy’: Boris Johnson faces Tory backlash after he vows to hand higher earners a £10billion tax cut if he becomes Prime Minister
- The Conservative leadership front-runner made the expensive pledge today
- There are 2.5 million more higher-rate taxpayers today than there were in 1990
- The threshold was frozen for years but to increase it to £80k would cost £10bn
- Boris would fund with No Deal planning cash and increased NI contributions
Boris Johnson is facing a Tory backlash over plans to hand higher earners a £10billion tax cut if he becomes PM.
The former foreign secretary signalled he wants to raise the 40p income tax threshold to £80,000 in England, from the current level of £50,000.
He argued that someone earning around £60,000-a-year would see their personal tax bill fall by an estimated £1,000 – and the move could be funded from the government’s Brexit ‘warchest’.
However, the IFS pointed out that wealthy pensioners would be the biggest winners – while there was criticism that bankers and MPs would be better off.
Leadership rivals warned that the move would reinforce the image of the Tories as ‘the party of privilege’.
Mr Johnson fleshed out his pitch in his latest column for the Daily Telegraph, saying the cost of the policy could be met through some of the cash set aside for No Deal Brexit planning and increasing national insurance payments made by workers.
Boris Johnson used his weekly newspaper column to call for a massive hike in the threshold at which people should pay tax at 40p in the pound
Mr Johnson wrote: ‘We should be cutting corporation tax and other business taxes.
‘We should be raising thresholds of income tax – so that we help the huge numbers that have been captured in the higher rate by fiscal drag.
‘We can go for much greater economic growth – and still be the cleanest, greenest society on earth.’
Under the plans someone earning £60,000 is estimated to see their tax bill fall by £1,000.
The move will cost an estimated £9.6billion a year and will be funded from the £26.6billion of ‘fiscal headroom’ currently set aside by the Treasury for no-deal preparations.
How will the Tory leader battle play out?
After Theresa May formally tendered her resignation as Tory leader on Friday, nominations are opening at 10am for her replacement.
Anyone hoping to stand in the contest needs support from at least eight fellow MPs by the time nominations close at 5pm.
Eleven hopefuls have declared they want to be in the vote – but half of them could fail to meet the threshold, which was raised by Conservative chiefs amid concerns the field was getting too large.
Once the candidates have been finalised, MPs will start whittling them down in a series of votes.
THURSDAY, JUNE 13
This will be another critical day, as the first ballot takes place.
Anyone with fewer than 16 votes will be automatically eliminated, and at least one will be ejected.
THURSDAY, JUNE 19
Further rounds of voting will take place during June until there are just two candidates left by this point.
They will then go to a run-off ballot of the 160,000 Tory members.
WEEK OF JULY 22
The winner is due to be declared this week.
They will take over from Mrs May as PM shortly afterwards – probably in time to take a session of PMQs before the Commons breaks up for its summer recess.
The number of people paying the 40p rate of income tax has risen steadily from 1.7 million in 1990 to 4.2 million in the current tax year.
Hundreds of thousands of additional people started paying higher rate tax after former chancellor George Osborne repeatedly froze the threshold at which the 40p rate was paid.
The threshold was raised from £41,900 to £50,000 in 2014 in response to the concerns of Tory MPs.
These plans however would go much further than simply to bring the 2019 threshold into line with the 1990 one, allowing for inflation.
Tory hopeful Dominic Rabb said he would rather cut the lowest paid’s taxes rather than what would be interpreted as ‘the caricature that you’re the party of privilege and you are only in it to help the wealthy’.
Mr Raab had earlier pledged to raise the employee’s National Insurance threshold to ‘take the lowest paid out of payroll taxes altogether’.
Former Commons Leader Andrea Leadsom also took aim at Mr Johnson’s plans for tax cuts, saying they were not feasible in the current Parliament.
She told the BBC: ‘I think, in reality, in this Parliament, it will be impossible, to actually get whole-scale tax changes through.’
The influential IFS think-tank said the main beneficiaries from the proposal would be wealthy pensioners, who do not pay national insurance.
‘The net cost (to the government purse) would be in the order of £10bn a year. That’s obviously a lot of money,’ IFS director Paul Johnson said.
‘It helps the 10 per cent of highest earners.
‘And it is worth saying that the group who would benefit the most would be the high-income pensioners who don’t pay national insurance at all.
‘So there’s a particular group who do particularly well – that’s those over the age of state pension age with more than £80,000 a year.’
It comes after several opther leadership contenders made bold tax pledges including:
- Jeremy Hunt, who wants to slash corporation tax from 19 per cent to 12.5 per cent
- Dominic Raab who promised to cut the basic rate of income tax from 20p to 15p
- and Sajid Javid who suggested the £150,000 threshold at which people pay the 45p rate of income tax could be raised under his leadership.
The Tory leadership race currently includes 11 candidates: Esther McVey, Mark Harper, Sam Gyimah and Andrew Leadsom, Michael Gove, Rory Stewart, Dominic Raab, Johnson, Sajid Javid, Matt Hancock and Jeremy Hunt.
French President Emmanuel Macron has warned that Boris Johnson’s threat to withhold the UK’s £39bn ‘divorce bill’ payment from the EU could be treated like a sovereign debt default.
Nations which do not repay money they have borrowed – those which default on their sovereign debt – are punished by international markets.
A debt default leads to devaluation of the currency, an increase in the price of servicing national debt, and a lower national credit score – although it is unknown whether the international financial markets would respond in line with historical precedent in this case.
It comes after Boris Johnson vowed to deliver Brexit and keep hold of the £39billion divorce payment from the EU unless better exit terms are offered – as he insisted only he can defeat Labour and the Brexit Party.
The leadership campaign front-runner pleaded with Conservative MPs and members, saying he would be prepared to refuse to pay the promised £39 billion to the European Union – and would step up preparations to counter no-deal ‘disruption’.
‘I think our friends and partners need to understand that the money is going to be retained until such time as we have greater clarity about the way forward,’ Johnson told the Sunday Times. ‘In getting a good deal, money is a great solvent and a great lubricant.’
French President Emmanuel Macron warned that not paying the £39bn would be treated like a sovereign debt default
But a source close to French President Emmanuel Macron countered that failure to pay the Brexit bill would be equivalent to a sovereign debt default.
What is a sovereign debt default?
Nation states which do not – or cannot – repay money they have borrowed within the agreed timescale are said to have defaulted on their sovereign debt.
In recent history, Venezuela defaulted on $65bn two years ago in the grips of economic meltdown, and Greece failed to make a payment in 2015 during the debt crisis which nearly led to the country’s departure from the EU.
Although it remains possible to borrow money after a default (several Latin American countries are repeat offenders) the increased likelihood of default is priced in to the cost of borrowing.
So in UK terms the payments offered by the UK government to those who buy its debt (bond yields) would have to go up to make the debt a more attracted proposition.
This would increase the cost of borrowing and increase the percentage of the UK’s GDP spent on financing that debt – leaving less money for schools, hospitals, or tax cuts.
The pound would also likely fall, and Britain would find its rating among international credit agencies further downgraded.
However it remains to be seen how the markets would treat a non-payment of the divorce bill, since the UK would not exhibit the underlying economic weaknesses of a nation which cannot pay its debt.
‘Not honouring your payment obligations is a failure of international commitments equivalent to a sovereign debt default, whose consequences are well known,’ the source said.
The European Parliament’s chief Brexit negotiator, Guy Verhofstadt, also responded with something approaching alarm, tweeting: ‘This would not only hurt the UK’s credibility as an international partner but it is absolutely unacceptable and contradicts what almost every lawyer in the UK thinks about it.’
Another senior Brussels figure said that any attempt by Mr Johnson to withhold payment would put the ‘credibility of the UK as a sovereign signature’ into doubt, the Sunday Times reported.
The revelations come as the Sunday Times reported that the first time Donald Trump tried to call Boris Johnson recently he assumed it was a hoax.
Johnson said someone with a mild Irish accent had called him claiming to be from the Downing Street switchboard, saying they would put him through to the White House situation room.
The Tory frontrunner said: ‘Thinking quickly as I do, I said, ‘To all our listeners on Radio Kilkenny, I was not fooled for an instant’.’
Leadership rival Michael Gove set out plans to replace VAT after Brexit with a ‘lower, simpler’ sales tax.
And Sajid Javid’s campaign received a boost with an endorsement from Scottish Tory leader Ruth Davidson.
In his first major interview of the campaign, Mr Johnson told the Sunday Times he could defeat the twin threat posed by the leaders of the Brexit Party and Labour – comparing them to the sea monsters from Greek mythology which troubled Odysseus.
‘I truly believe only I can steer the country between the Scylla and Charybdis of Corbyn and Farage and on to calmer water.
‘This can only be achieved by delivering Brexit as promised on October 31 and delivering a One Nation Tory agenda.’