Steep tax cuts planned by the Tory contenders battling to become Prime Minister could trigger a surge in public debt, experts warned.
Candidates fighting to lead the party have proposed cuts to income tax, which could be a boon for millions of workers and give the economy a huge boost.
But economists fear that in the heat of the leadership battle, proposals are being made without any thought for how they would be funded – potentially adding billions of pounds a year to our £1.8 trillion national debt.
Paul Johnson, director of the Institute for Fiscal Studies, said: ‘The public finances are now just in a state where you could end austerity and start spending again.
But if you’re spending another £9billion or £10billion a year on tax cuts, there’s less money knocking around.
‘It may be that they’re happy to borrow a lot more than Conservative governments have historically been willing to. But these are big, significant tax cuts which would impact the public finances.’
Leadership favourite Boris Johnson has pledged to lift millions of people out of higher rate income tax payments by boosting the threshold from £50,000 to £80,000.
The changes would save someone earning £80,000 a year or more £3,000 in tax, the IFS said.
These cuts would benefit 4.7m people who pay the higher or additional rate.
But it would also cost the Treasury more than £9billion a year, which would have to be funded either through continued austerity or taking on more debt.
Dominic Raab has said he will slash the basic rate of income tax by 5 percentage points to 15p in the pound.
The scheme would benefit all of the country’s 30m income taxpayers. And it would save someone earning the average wage of £27,456 around £750 a year. But the IFS said the bill for this cut would be £25billion a year.
Raab is also planning changes to national insurance which would increase the cost of his cuts to over £30billion, Johnson said.
This is almost equal to our £35billion annual spend on public order and safety, which includes police forces.
Fellow contender Sajid Javid also said he could seek to cut the basic rate of income tax.
Other proposals put forward include a plan by Michael Gove to scrap VAT and replace it with a sales tax in the hope this would be simpler for businesses to cope with. At present VAT brings in £140billion a year.
The IFS’s Paul Johnson said that a new tax would presumably recover some of these costs, although Gove has not yet set out any details.
However, Johnson warned it could be unworkable in any case because firms could seek to avoid paying up by disguising sales to consumers.
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