Tax cut pledges by Tory leadership hopefuls ‘risk stoking inflation and inequality’
The scale of tax cuts promised by Conservative leadership hopefuls would blow a hole in the public finances and could lead to rampant inflation, Tory opponents and economists have warned.
Nadhim Zahawi, who took over as chancellor last week, used a leadership speech on Monday to announce tax policies that would cost an estimated £50bn a year, almost as much as the combined budgets of the Ministry of Defence and Foreign Office.
Sajid Javid, the former health secretary, who also served as chancellor, launched his leadership bid with tax cuts he said would cost about £40bn a year, including a reduction to income tax, scrapping the recent rise in national insurance, and a temporary 10p a litre extra cut in fuel tax.
Of the 11 candidates vying to become the new prime minister, almost all have made lavish pledges to reduce the tax rate and shrink the state, with costings generally left vague.
The pound has fallen to the lowest level in two years in recent weeks amid growing concern over the strength of the British economy and political instability during an intense squeeze on households and businesses.
Economists said the proposals would risk stoking inflation and inequality, while adding to government borrowing or requiring sweeping spending cuts. Rishi Sunak’s camp believes some of the promises would lead to a fiscal black hole amounting to tens of billions of pounds.
Nick Macpherson, the former top Treasury mandarin, said the candidates were showing themselves to be “less the heirs to Margaret Thatcher; more the disciples of Recep Erdoğan”, referring to the Turkish president’s economic policies, which have been blamed for contributing to inflation hitting almost 80%.
Gavin Barwell, a Conservative peer who was Theresa May’s
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