Tax  

Tory leadership hopefuls and their potential tax policies

Tory leadership hopefuls and their potential tax policies
Boris Johnson will step down as prime minister in September (Jessica Taylor/UK Parliament via AP)

On September 6 this year, the UK will have a new prime minster, after Boris Johnson agreed to step down after the summer parliamentary recess.

Five Conservative MPs are currently in the running for the top job and their campaigns are in full swing.

With soaring inflation, concerns over a larger-than-expected jump in energy prices later this year and a hike in interest rates, tax has become one of the biggest issues debated.

Potential tax changes include cuts in income tax, scrapping the social care levy, and cutting VAT on energy bills.

Five MPs are still in the running for Tory leader, as of today (July 14), their potential tax policies are outlined below.

Penny Mordaunt

Trade minister Penny Mordaunt said she will increase income tax thresholds for basic and middle income earners in line with inflation if she wins the Tory leadership vote.

In an op-ed for The Telegraph, Mordaunt said she rejected the “oversimplification” of how the current economic challenges are addressed.

She outlined that she will drive growth and competition, but will pioneer “sound money” and will implement fiscal rules to ensure that debt as a percentage of GDP falls over time.

Mordaunt also said she will work with the Bank of England to focus on getting inflation under control, noting its independence from the government. 

Tax simplification is important, she added, to reduce the “bureaucratic burden” on taxpayers.

“Cutting tax is welcome, however this must be accompanied by a programme of economic reform, with a critical focus on competition,” she said.

Income tax currently accounts for £228bn of the £916bn raised by the Treasury each year, with a cut of 1 per cent equating to £5.25bn less for government coffers each year.

For a salary of £26,000 a year, a 1 per cent tax cut would result in a £134 saving.

Chris Etherington, partner at RSM, said: “As tax cuts go, reducing the basic rate of income tax will be incredibly expensive. 

“It is an eye-catching and a relatively simple measure to implement but its benefit will be heavily diluted as it is spread across all taxpayers.”

Finally, Mordaunt has signalled she will cut fuel duty by 50 per cent, to be funded by the increased tax revenues from VAT due to inflation.

Rishi Sunak

In his resignation letter last week, Sunak hinted at prior clashes with Boris Johnston over tax changes, and the former chancellor has warned the other leadership contenders against making unsustainable tax cuts.

One aspect of the argument has been reported to be Sunak’s refusal to cut corporation tax.

Business leaders have hit out at the potential policy, saying it is a tax levied on profits at a time when many companies are facing recession.