Frances Ball 11 Jun 2019 12:20pm

Gove's VAT cut is "riskiest" tax proposal in 50 years

Candidates for Conservative leadership have begun to announce their tax policies, with frontrunners pushing for significant tax cuts.

The policies announced so far constitute “a bidding war”, the Institute for Fiscal Studies (IFS) director Paul Johnson told The Times.

Environment, food and rural affairs secretary, Michael Gove, has proposed one of the more radical and costly reforms so far, suggesting that he would scrap VAT and replace it with a sales tax.

According to the IFS, this would cost just under £140bn – although the details around the policy remain vague. Johnson pointed out that the policy would be the “riskiest, most disruptive” proposal seen in at least 50 years.

Not every candidate has declared a radical tax policy. International development secretary Rory Stewart has cautioned against “reckless” spending pledges, arguing that the party should restore a “reputation for economic and fiscal prudence”.

South Northamptonshire MP Andrea Leadsom has similarly steered clear of announcing major tax reform, on the basis that it would not get through a hung parliament. She is however a low-tax candidate, promising “incentives for enterprise”.

Forest of Dean constituency MP Mark Harper – who is an ICAEW chartered accountant – launched his campaign this morning.

He refused to concede “massive commitments” on tax, saying that it could “throw away” the Conservatives’ reputation for fiscal responsibility. He did, however, say that he didn’t believe the government should “be promising more money to higher rate taxpayers”.

Uxbridge and South Ruislip MP Boris Johnson – currently the bookies’ favourite to win – has proposed raising the tax threshold for top earners from £50,000 to £80,000.

In his column in the Telegraph, he argued that the policy would help “the huge numbers that have been captured in the higher rate by fiscal drag”.

Around 160,000 members of the Conservative party will choose the next leader.

John McDonnell, the shadow chancellor, said in response to Johnson’s pledge to cut higher income tax, “With our schools, care for the elderly and our police services at breaking point, Boris Johnson’s proposals to give a tax cut to higher earners reveals how out of touch the Tories are. As predicted, the Tory leadership contest is becoming a race to the bottom in tax cuts.”

Jeremy Hunt, the foreign secretary, has made the case for cutting corporation tax to 12.5%, the same rate that Ireland applies. He would also raise spending on defence.

Esher and Walton MP Dominic Raab would instigate a 5p cut in basic rate of income tax, while raising the national insurance contributions threshold to £12,500.

Sajid Javid, the home secretary, would look at a cut in the top 45p rate of income tax. He has also hinted at reversals on the recent increase in stamp duty.

Gerard Lyons, a former advisor to Boris Johnson, argues that “candidates are trying to move the fiscal debate forward”, the FT reports.

“This is an environment where the chancellor has more room for fiscal manoeuvre”, Lyons added.

Whatever the outcome, the IFS’ Johnson said, “The winner and their chosen chancellor are going to have to work with Treasury officials to run a spending review and deliver a budget before the year is out.”