Boris Johnson has promised to cut taxes for around 3 million higher earners by raising the 40p threshold from £50,000 to £80,000 if he becomes Prime Minister. Currently individual taxpayers are able to enjoy a £12,500 personal allowance where no tax is payable and a basic rate band of £37,500 where tax is payable at 20%. Between £50,000 and £150,000 the ‘higher rate tax’ is 40%, after which it increases to ‘additional rate tax’ of 45%. Therefore on the face of it this would be a generous cut which would save an £80,000 earner £6,000 per annum (calculated as 20% of £30,000).
Johnson stated “We should be raising thresholds of income tax – so that we help the huge numbers that have been captured in the higher rate by fiscal drag.” He explained that the move would cost around £9.6bn a year, which would be paid for partly from savings in Brexit no-deal preparations and also from a national insurance increase.
Meanwhile Jeremy Hunt, the foreign secretary, has pledged to use the no-deal ‘fiscal headroom’ to cut corporation tax from 19% to just 12.5%. This would clearly rev up the UK’s growing reputation as a ‘respectable tax haven’.
Currently Boris Johnson is heavily odds-on to be the next conservative leader with Jeremy Hunt as the 7/1 second favourite. Therefore we should be taking the prospect of these cuts seriously. However there has been a predictable backlash from Scotland in respect of Boris’s plan which would involve Scots paying more national insurance without the drop in income taxes which would be enjoyed by those south of the border.
This is a timely reminder both that Scottish income tax rates are decoupled from the rest of the UK and also that governments are not averse to some ‘semantic trickery’ by cutting income tax with one hand and raising national insurance with the other. It does however seem a fair bet that there will be at least some headline tax cuts coming our way in the short to medium term.
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