Sunak’s £17bn tax cut vow based on questionable plans, analysts warn

Rishi Sunak’s manifesto pledge to cut more than £17bn of taxes came under fire on Tuesday as analysts warned the promise was funded by questionable plans to rein in welfare spending and curb tax dodging. 

The UK prime minister said he would slash a swath of taxes if the Conservatives are re-elected on July 4, including abolishing national insurance contributions for the self-employed and cutting the levy further for employees.

The giveaways, Sunak insisted, would be funded by giving less to people dependent on welfare and extracting billions of pounds more a year in revenue by clamping down on tax avoidance and evasion.

“Those are definite giveaways paid for by uncertain, unspecific and apparently victimless savings. Forgive a degree of scepticism,” said Paul Johnson of the Institute for Fiscal Studies think-tank.

The centrepiece to the Tory tax reductions was a plan to further trim national insurance contributions by employees from 8 to 6 per cent by April 2027, at a cost reaching £10.3bn in 2029-30.

The manifesto also pledged to remove contributions by the self-employed, which are a small fraction of the overall NICs haul, at a purported cost of £2.6bn in that year. 

Previously trailed policies to raise the tax-free allowance for pensioners were also added to the manifesto, bringing the total tax giveaway to £17.21bn in 2029-30.

Sunak’s assertion that he was fully accounting for how to pay for the tax reductions rests on his assertion that Conservative policies will bring down the welfare bill by £12bn over the next five years.

But proposals to restrict incapacity benefits, toughen the regime for jobless benefits and step up job support for people with long-term health conditions are already factored into forecasts from the independent Office for Budget Responsibility, which last gave its fiscal outlook in March. 

The only significant reform to the benefits system that is not already included in the OBR’s forecasts is a pledge to “halt the unsustainable rise” in claims for disability benefits, which are currently expected to cost £30bn by 2028-29, chiefly by tackling the rise in claims relating to mental health.

The government published a green paper on the topic for consultation in April but this contained few concrete proposals. 

“Welfare reforms tend to be more difficult than civil servants and politicians originally anticipate,” said Mike Brewer, interim chief executive of the Resolution Foundation think-tank.

“It’s about the scale — is it plausible to raise £12bn in one parliament? They haven’t said in detail how they will do it,” he added.

The tax cuts would also be funded in the Tory plans by reducing tax avoidance and evasion by £6bn a year. Brewer said the manifesto did not substantiate how HM Revenue & Customs would achieve such large savings over and above its current tax enforcement efforts.

“On tax avoidance they really haven’t told us anything about how they are going to get the extra money,” he said.

Indeed, some experts said Sunak’s tax-cutting promises would encourage further avoidance.

Abolishing national insurance contributions for the self-employed, while “only” cutting employees’ contributions, would strengthen the existing incentives for people to change status, Johnson of the IFS noted.

Scrapping capital gains tax on property sales to tenants would be “an open invitation to abuse and avoidance”, he added.

Dan Neidle, founder of Tax Policy Associates, said: “There’s a big industry selling tax avoidance schemes to landlords. The promise of a shiny new CGT exemption will be irresistible.”

On spending, the Tory manifesto included Sunak’s promise to raise defence spending to 2.5 per cent of GDP by 2030 at a cost of £5.7bn extra annually by that year.

This and other spending promises would be funded by cuts in the size of the civil service to its pre-pandemic size.

But the pledges did not address a deeper tension in the current outlook for UK government spending. The Tories in March pencilled in a 1 per cent real terms rise in overall spending for the rest of the decade.

Some departments, such as health, will get more than that. But for unprotected areas, like justice and home affairs, the outlook implies harsh spending reductions even when public services are under deep stress.

“This manifesto remains silent on the wider problems facing core public services — and if you think those civil servants, management consultants and quangos were delivering anything, these plans imply an even tougher time than set out back in March,” said Johnson.