They say a week is a long time in politics but, these days, it’s starting to feel like an eternity. Over the weekend, around a dozen Conservative MPs were canvassing support having put themselves forward to replace Boris Johnson as both party leader and Prime Minister.
From high-profile cabinet members like Rishi Sunak and Nadhim Zahawi to the slightly lesser-known names of Tom Tugendhat and Kemi Badenoch the race is on to become the next PM. Issues such as international trade, public sector strikes, and the developing situation in Ukraine are sure to be high on the agenda. Unsurprisingly, though, given the current inflation and cost of living crisis, the early battle line has been drawn on the issue of tax.
The tax burden, at present, is set to reach its highest level in 80 years, according to official forecasts. So, it’s no surprise that most, if not all, of the contenders have promised cuts to individual taxes and/or business rates.
With Parliamentarians set to go on their summer recess later in July, backbench MPs and party members are keen to whittle down the runners and riders to a final two over the next week or so, with the first round of voting commencing this afternoon.
Mr Johnson’s successor will be announced in September and will be chosen by a combination of 347 sitting Conservative MPs and 160,000 party members nationwide. The deadline for nominations closed on Tuesday evening (12th) at 6pm, with each candidate required to secure the support of 20 MPs in order to make it onto the ballot. That increases to 30 to make it to the second round.
How will all this affect your Tax?
You’ll no doubt be seeing and hearing plenty enough from them all over the coming days. But, we’re going to take a closer look at each of the eight candidates, strictly on the grounds of their economic principles and the financial policies on which they’re campaigning. We are accountants after all…
Let’s get started on the race for Number 10 and how it will affect your tax.
Tom Tugendhat, Chairman of the Foreign Affairs Select Committee
Having never held a position in the cabinet before, Tom Tugendhat’s appeal to some is the clean slate he represents from the austerity years of Cameron and Osbourne, through the Brexit difficulties experienced by Theresa May, and right up to the pandemic and scandal-ridden administration of Boris Johnson. He was the first to submit his nomination papers to the 1922 Committee chairman, Sir Graham Brady, and can count both Damian Green and the current Secretary of State for International Trade, Anne-Marie Trevelyan, as early allies.
As the self-styled ‘cost-of-living-crisis-candidate’, Mr Tugendhat is campaigning on a promise to cut taxes and scrap the recent rise in National Insurance contributions (NICs) – a policy he actually voted against at the time. Mr Tugendhat also wants to see a reduction in fuel duty which has contributed to ‘crippling’ prices at the pump. Both of these principles were emphasised in his campaign launch on Tuesday morning when he pledged to cut fuel duty by 10 pence and reverse the aforementioned NI rise.
However, on the subject of business rates, Mr Tugendhat said it was ‘unrealistic to make pledges about cutting business tax unless you have a 10-year plan for the economy’.
Nadhim Zahawi, Chancellor of the Exchequer & former Education Secretary
A formidable candidate, Nadhim Zahawi is a ‘low-tax Tory’ who has the backing of colleagues like Brandon Lewis and Tobias Ellwood.
Mr Zahawi, an Iraqi immigrant as a child, became Chancellor less than 24 hours before calling on the man who appointed him to resign. He is frank about the need to stabilise the economy and has called for a review of the UK’s policy on corporation tax – indicating that he intends to either reduce or reverse the planned rise in 2023. According to the Institute for Fiscal Studies (IFS), that move would cost the UK £17bn a year.
Nonetheless, Mr Zahawi has criticised Rishi Sunak, his predecessor as Chancellor, for his stance on tax cuts, saying they’re a ‘critical step for growth’ and not a ‘fairy tale’.
On income tax, Mr Zahawi wants to cut the basic rate of tax by 1p per year for the next two years, potentially saving households around £900 each year. The basic rate of income tax is currently 20p in the pound for earnings between £12,571 and £50,270. That doubles to 40p for earnings above that threshold. It’s then 45p in the pound for earnings over £150,000.
He insists he’s assessed the numbers carefully and fully costed his taxation plans. He also intends to increase spending on defence.
Rishi Sunak, former Chancellor of the Exchequer
Seen by many commentators – and bookmakers – as the man to beat, Rishi Sunak had the most public declarations of support, by far, before the voting began. This included the likes of Deputy Prime Minister, Dominic Raab, former party chairman, Oliver Dowden, and former Health Secretary, Matt Hancock.
Despite being the favourite, though, it could be suggested that Mr Sunak is slightly disadvantaged when it comes to the issue of taxation, and the economy more generally. After all, he’s been in situ throughout the current cost of living crisis, and it’s his policies on things like national insurance and corporation tax that opponents are queueing up to condemn. For instance, just last week, Jacob Rees-Mogg branded Mr Sunak a ‘high-tax chancellor’.
He has made it clear, from the release of his carefully choreographed campaign video and beyond, that his attention will be on ‘fiscal prudence’ rather than unsubstantiated tax cuts. He’s not shied away from the economic realities of the difficulties we’re facing, urging caution and calmness.
Whilst some will appreciate his honesty and his pragmatism, Mr Sunak may find it harder to successfully transmit that message to party members when pitted against some of his rivals who are making bolder, sexier statements on the subject of tax.
He has, therefore, sought to soften his stance by guaranteeing tax cuts once inflation begins to fall and the economy grows stronger. Something he says is a question of ‘when, not if’. This includes the continuation of plans to reduce income tax in 2024.
His plans have received influential endorsement from Tory peer and former Chancellor, Lord Lamont, who said he’ll be supporting Mr Sunak in the leadership contest. “The country faces an extremely serious economic situation,” he said. “To weather the storm requires a high degree of competence. Tax cuts unmatched by spending cuts achieve nothing. Yes, the tax burden needs to be reduced, as Rishi also believes, but only as and when the public finances allow.”
Penny Mordaunt, former Defence Secretary
So far, Ms Mordaunt hasn’t given too much away in terms of her strategy for tax and spending. Her biggest policy announcement to date is the 50% cut in fuel duty that would take effect immediately upon her election to Number 10.
Currently, the duty on fuel accounts for 28% of the cost to consumers, with a further 17% in VAT. This has contributed to record prices at the pumps in light of supply issues brought about by Brexit and the ongoing conflict in Ukraine. Ms Mordaunt has suggested the cut would be funded by the increased VAT revenues that are being driven by inflation.
Ms Mordaunt has the backing of influential voices including Damian Collins, David Davis, and former leadership candidate, Andrea Leadsom, as well as the industry-funded campaign group FairFuelUK. She also topped an influential poll of ConservativeHome members earlier in the week and her odds have been slashed as a result.
Jeremy Hunt, former Health & Foreign Secretary
So far in the contest, Jeremy Hunt’s tax policies have centred on business rates and tackling inflation. A successful business owner himself in a past life, he’s promised the ‘lowest corporation tax rates in the western world’ as well as a five-year, year-on-year rate reduction for those ‘most in need’.
Corporation tax is, effectively, an income tax on UK companies. It is a direct tax on the annual profits of businesses. Under current arrangements, corporation tax is scheduled to increase by 6% next year from 19% to 25%. This would put the UK behind only France and Canada as having the third-highest rate in the G7.
Mr Hunt has declared that he will reverse those plans and go one step further, slashing the tax rate to 15% in an effort to stimulate growth. This would put the UK in line with the current rate in Germany, but the IFS reckons it will cost a further £14bn to implement. What the IFS does not account for in their calculations, though, is the potential for investments that such a cut could have on the economy at large.
Mr Hunt’s focus on business rates, though, is somewhat at odds with his tax stance the last time he ran for the party leadership in 2019. Back then, he proposed an uplift in the threshold for NICs. In other words, a tax cut for middle earners.
However, this time round, he appears more reluctant to trim personal taxes as he says he wants to ‘avoid fuelling rising prices’, with reducing inflation being his number one priority. Mr Hunt has therefore made it clear that he would not reverse April’s NICs rise as the NHS ‘needs the money’.
He has the backing of prominent former ministers Andrew Mitchell and Esther McVey, who he has said would be appointed deputy PM under his premiership.
Kemi Badenoch, former Levelling Up and Equalities Minister
Kemi Badenoch is one of the youngest candidates in the race, along with Rishi Sunak and Suella Braverman. She hails from the right of the party and believes in a smaller state that ‘focuses on the essentials’. She’s been critical of what she sees as the government’s status as a ‘piggy bank for pressure groups’. It’s this message which has engendered support from the likes of Michael Gove and Ben Bradley.
Badenoch has pledged to lower taxes in order to boost growth and productivity, with a ‘disciplined approach’ to spending thereafter. She intends to ‘reduce the amount spent on international aid’ and ‘improve efficiencies in the civil service’. This includes asking why ‘millions are being spent on jobs in the civil service that didn’t exist decades ago when the government can’t deliver passports and driving licences on time’.
At the launch of her campaign yesterday she said she would not be drawn into a ‘tax bidding war’. “The dividing line in this race is not tax cuts, it’s judgement,” she said.
Liz Truss, Foreign Secretary
Another key contender, it’s been suggested by many in the past that Liz Truss has actually long wanted to be Chancellor. So, as she launched her bid to go one further and take the top job, it should come as no surprise that she’s centring her campaign on economics.
Announcing her candidacy, she told the Telegraph that it ‘isn’t right’ to be putting taxes up and that she intends to ‘reverse the national insurance increase’ that came into effect in April and ‘keep corporation tax competitive to attract business and investment into Britain’. She’s also said she wants to see Covid-related debt placed on a ‘longer-term footing’.
Mrs Truss, and her supporters, who include Business Secretary Kwasi Kwarteng and Brexit Minister, Jacob Rees-Mogg, have been keen to stress that her politics is rooted in ‘low-tax principles’. Having been responsible for securing the UK’s post-Brexit trade deals, it can be assumed that that will remain a key focus for her. And, she has also indicated that she would increase spending on defence.
Suella Braverman, Attorney General
Suella Braverman is an ardent believer in deregulation and the scrapping of net-zero. She’s stated her aim is to ‘get spending under control’ without offering too many details on how this will be achieved.
On tax, however, Mrs Braverman says she intends to tackle waste and cut VAT on energy as part of a wider plan to make the UK a ‘low-tax state’ and to attract new investment into the country.
Mrs Braverman’s supporters include prominent backbenchers Steve Baker and Sir Desmond Swayne.
Who’s out of the race?
Former Health Secretary, Sajid Javid, was one of the first MPs to launch his bid to replace Boris Johnson, having last week led a slew of resignations which, ultimately, brought the current PM’s administration to a grinding halt. His headline policy, and arguably the starting gun for this week’s tax and spend ‘royal rumble’, was the promise to scrap Rishi Sunak’s planned hike in corporation tax.
He faced a degree of criticism, both from opposition parties and some fellow Conservatives, for failing to outline how he intended to fund his wide-ranging tax cuts.
Furthermore, when it came to the recent rise in NICs, Mr Javid, having initially backed the proposals, arguing that the hike was necessary to increase spending on health and social care, then suggested he was considering reversing the payroll tax.
Mr Javid dropped out of the race just hours before the nominations were confirmed and is yet to confirm who he’s backing instead.
Transport Secretary, Grant Shapps, also withdrew his candidacy on Tuesday. His specific economic policies included bringing forward the planned 1p income tax cut and freezing the proposed increase in corporation tax.
He’d also previously suggested that he’d have sanctioned an emergency Budget had he become Prime Minister, with the priority being to cut personal taxes, particularly for those ‘most vulnerable’. He’s since thrown his support behind former Chancellor, Rishi Sunak.
With no MPs declaring their support for him, Junior Foreign Office Minister, Rehman Chishti, also dropped out of the race on Tuesday.
Home Secretary, Priti Patel, meanwhile, was expected to throw her hat into the ring late on but her bid for the leadership never materialised. An ardent Brexiteer and staunch Johnson loyalist, Ms Patel has yet to publicly offer her backing to any of the candidates, though it’s anticipated that she’ll be supporting fellow cabinet member, Liz Truss.