We all know that Boris Johnson is one of several Conservative MPs running for leadership of the party and, therefore, Prime Minister.
One of these candidates, Boris Johnson, has promised that he will cut income tax for those earning over £50,000 per year if he is chosen. Let’s examine who will benefit from that and get an opposing opinion.
Why has Mr Johnson this type of tax cut?
Mr Johnson’s justified this decision saying: “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.”
His own MP salary is £79,468, so perhaps this decision is simply to make things financially better for the colleagues that are voting in the leadership election.
Radio 4’s Today programme interviewed Paul Johnson of the Institute for Fiscal Studies. He said that, in the wider population, people solely living on investment income and more well off pensioners will be the biggest beneficiaries. As neither of these groups pay any National Insurance and will see “quite a significant tax cut”.
What are the figures involved?
Currently, the higher rate of 40% is applied to any income over £50,000 per year in Wales, England and Northern Ireland. Boris Johnson proposes to raise this figure to £80,000.
Obviously this means that the Treasury is losing money on the taxpayers’ earnings that fall in £30,000 gap. The Telegraph calculated that the total cost would be £9.6bn every year. Mr Johnsons plans to fund the move by using the £26.6bn that is earmarked to pay for a no-deal Brexit and an increase in NICs. This will bring them in synch with the new income tax bracket definition. Currently, those in the Higher Rate tax band only pay 2% NICs.
What do other people think?
Mr McDonnell, the shadow chancellor, said “With our schools, care for the elderly and our police services at breaking point, Boris Johnson’s proposals to give a tax cut to high earners reveals how out of touch the Tories are.” He also said that the whole Conservative leadership election was turning into a “race to the bottom in tax cuts”.
The other candidates also have differing opinions about the workability of his plans. During a Radio 4 interview, initial fellow candidate Andrea Leadsom expressed concern about their success as a bill in Parliament, “in reality, in this Parliament, it would be impossible to actually get wholesale tax changes through”.
Another leadership candidate, Dominic Raab, said that the philosophy behind tax cuts for the wealthier members of society makes Mr Johnson into “the caricature that you’re the party of privilege and you are only in it to help the wealthy”. His preference would be to give tax cuts to those on lower pay.
If Mr Johnson does move into number 10 and gets this proposal through Parliament, the majority of taxpayers paying 20% Basic Rate Income Tax, will see no change to their tax bill.
If you earn between £40,000 and £80,000, there could be good news coming your way in terms of income tax cuts. But bear in mind that this will be somewhat balanced by an increase to your NICs.
We will all have to wait and see what happens. Keep an eye on our tax news blog for any changes that affect your tax position.
