s former chancellor Rishi Singh and foreign secretary Liz Truss have heated up this week, with their tax and economic plans thrown into sharp relief amid a battle for the keys to 10 Downing Street.
Tax has become a clear dividing line between the pair, with Mr Sink advocating prudence in the country’s finances, while Ms Truss is promising huge tax cuts of more than £30 billion.
But both face the challenge of providing some form of additional support this coming winter amid a cost-of-living crisis amid a slowing economic backdrop.
Here we look at each candidate’s key policies and how they fare in the eyes of some of the UK’s top economists:
– Rishi Sink Projects:
Mr Sink announced increases in corporation tax and National Insurance before stepping down as chancellor and is sticking to his guns despite storm clouds building over the economy.
He has promised to eventually cut taxes. But the former chancellor is keenly aware of how much he spent to keep the economy afloat during the pandemic.
Now he wants to tap households and businesses, many of which would have struggled even more without government help to pay for some of these efforts.
Mr Sink argues that the tax that the government collects needs to rise before it falls. He said taxes would only come down “once we get inflation under control”.
While corporation tax is due to rise next year, it has pledged to consider a modest 1% cut in income tax in 2024.
He has so far resisted pressure to bring it forward, but has become more vocal about cutting taxes to win votes.
Alan Monks, an economist at JPMorgan, said: “He could balance higher corporation taxes with more targeted relief for businesses, and by the end of next year when inflation has eased, the planned Income tax cuts can be brought forward.
“It will eliminate some of the differences with Truss.”
In terms of further cost of living, he has already promised to cut some business taxes resulting in a total package of around £10 billion to £15 billion which he announced at the end of May. what was
“Such gifts are easier to justify financially, because they are effective, targeted and have a time limit that means they directly offset the deficit after two or three years,” Mr Monks said. will not affect.”
But Samuel Toombs, chief UK economist at Pantheon Macroeconomics, said Rishi Singh’s win would likely bring only “limited” extra help to households this winter.
– Liz Truss Projects:
While Mr Sink has pushed hard on raising corporation tax and national insurance, Ms Truss has vowed to cut them.
He has promised a jam now for Conservative Party members who want to see their tax bills cut, but with action to fix the country’s finances in a few years.
National Insurance will be one of his first priorities in Number 10, followed by the cancellation of a corporation tax rise – scheduled for next year – and a reduction in the green levy on energy bills.
His plans will be expensive for the government – the Institute for Fiscal Studies (IFS) estimates the bill at more than £30 billion.
She hopes the cuts can help spur growth, so costs are lower, but fears such cuts could push up inflation and cause interest rates to rise even faster. .
While Mr Sink’s plans would see the UK return to the level of corporation tax it last saw in 2011, Ms Truss would retain the level that came into force in 2017 under then Prime Minister Theresa May. In the era of – one of the lowest rates in the developed world.
There is little economic justification for tax cuts at the moment, despite the obvious temptation created by the cost-of-living crisis.
If the increase is scrapped it will cost £17 billion a year, but Ms Truss says it will encourage investment, therefore reducing costs.
The IFS somewhat agreed, saying the long-term cost of Ms Truss’s plan would be “significantly less” than £17 billion. But, he cautioned, “the impact certainly won’t be big enough for the tax cuts to pay for themselves.”
Mr Toombs said Ms Truss would likely have to borrow more money to fund her cuts.
“We suspect that these tax cuts could even be half-funded by spending cuts elsewhere, suggesting that the government is unlikely to run a current budget surplus in the mid-2020s, as currently planned. Has been, a Truss will be far under the Premiership,” he said.
The IFS also said its green levy plan still needs to be fleshed out.
Cutting the levy could save households around £150, according to Offgem’s forecast, but while Ms Truss has promised, there is little detail on the cuts.
The IFS said the candidate had not specified exactly which energy bill levies would be suspended – and what would happen to the renewable energy subsidies that the levies fund.
“These details will be important to assess the potential impact of the policy. And without them, it is impossible to say how much it will cost,” the IFS said.
Campaigners have also warned against the move – saying it could lead to difficulties in meeting climate targets.
But with energy bills forecast to rise from £1,971 today to around £3,300 for the average household in October, people will need more help.
Philip Shaw, chief economist at banking group Investec, argues that “there is little economic justification for tax cuts at the moment, despite the obvious temptation to do so in the wake of the cost-of-living crisis”.
He said tax cuts would help if the economy was struggling, but “obviously that’s not where we’re at right now”.
“The use of tax policy to stimulate the economy would be justified if we were to enter a sharp recession, perhaps followed by interest rate cuts,” he said.
“Further support will be needed for households, but the right way to approach this is to focus efforts on helping low-income households,” he added.
Mr Monks said some estimates suggested Ms Truss’s plans could end inflation and therefore lead to further rises in interest rates – with some estimates leading to a further rise in rates of up to half a percentage point. May be.