Rishi Sunak announces long-term plan to reduce income tax

Rishi Sunak announces long-term plan to reduce income tax

Rishi Sunak sought to shore up his tax-cutting credentials in the race to be the UK’s next prime minister with a fresh pledge to cut income tax in the next parliament.

The former chancellor, who faces foreign secretary Liz Truss in the Tory leadership contest, announced on Sunday that he would cut the basic rate of income tax in 2024 from 20% to 19 %, followed by further cuts until reaching 16% cent by 2029.

Sunak initially resisted tax cuts in the contest, instead running on a “sound money” platform and addressing inflation. But struggling to make headway against Truss, the former chancellor announced last week that he would cut VAT on energy bills to ease the cost of living crisis.

He described the latest plans as a “radical vision” but also “realistic” that harkened back to Margaret Thatcher’s tax-cutting agenda in the 1980s. Sunak also launched a coded attack on Truss, who has pledged to cut £30bn in taxes as part of his pitch to Conservative party members.

He said: “I would urge them to treat any view that doesn’t involve a difficult trade-off with caution and remember that if something sounds too good to be true, it probably is.”

But Simon Clarke, the chief secretary to the Treasury who supports Truss’ bid, criticized the long-term nature of Sunak’s plans. “We can’t afford to wait to help families, they need support now. Liz will cut taxes in seven weeks, not seven years,” he said.

A Truss campaign insider said: “It’s welcome that Rishi has taken another turn at cutting taxes, it’s a shame he didn’t do it as chancellor when he repeatedly raised taxes.”

Sunak’s team said Sunday that the cut was affordable. Each one percentage point cut costs £6 billion and the calculations were based on the UK economy growing by 1.7 per cent a year over the next parliament.

These growth rates were projected by the Office for Budget Responsibility for the year after 2024.

But the tax body also predicted that even with the first income tax cut in 2024, the tax burden would remain at a level not seen since the aftermath of the second world war.

Lower income tax rates in subsequent years would also not necessarily imply a fall in the overall tax burden, but would remain stable at a high level following tax increases imposed by Sunak in recent budgets.

The suggestion that it would be easy to cut taxes also failed to take into account the pressures on public services in the coming years and high inflation, which will make budget calculations difficult for the chancellor in the next parliament.

Torsten Bell, director of the Resolution Foundation, said that even with £30bn a year of tax cuts, more than Sunak’s plan, overall taxes would still be higher than at any time since from the beginning of the fifties.

“Saying you’re a tax cut is all well and good, actually cutting them in the 2020s is something else entirely, given the long-term structural pressures,” he wrote last week.

Meanwhile, a new poll of Tory councilors suggested the leadership race was tighter than other recent polls. Savanta ComRes said 31 per cent of councilors supported Truss and Sunak on 29 per cent.

Mel Stride, the former Treasury minister and a key member of Sunak’s campaign team, said “anyone who thinks this is going to be a coronation should think again”.

The two contenders will go head-to-head in the second leadership election for Conservative party members in Exeter on Monday. Two more events will be held on Wednesday in Cardiff and Friday in Eastbourne.



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About the Author: Chaz Cutler

My name is Chasity. I love to follow the stock market and financial news!