Tories and Taxes: Leadership Election

Amidst the Conservative leadership contest are a plethora of tax proposals. Ranging from a continuation of the fiscal conservatism in reigning in borrowing, to tax cuts amounting to over £30 billion. At a time of economic ruin with inflation reaching record highs and economic growth stagnating, a credible economic platform is required to battle these tough predicaments. Unfortunately, such criteria only applies to one of the remaining candidates.

Terrible Truss

Deemed a Thatcherite by many within the Conservative party, Liz Truss’ economic plan would only exacerbate inflation, thereby tarnishing the legacy of the first female Prime Minister. Truss calls for scrapping the National Insurance tax hike imposed by former chancellor Sunak alongside a reversal. Whilst a sure plan to create jobs, this ignores the bigger issue at play: inflation. This measure hasn’t been costed. A cumulative £30 billion tax cut would increase the deficit in the short term – increasing borrowing and driving inflation. Tax cuts are essential to promote long-run economic growth and prosperity. However, as Truss hasn’t proposed equivalent spending reductions and efficiencies, at a time of out-of-control inflation, greater borrowing will only exacerbate the problem at hand. Thatcher got a grip on inflation; Truss’ policies would make it worse.

Pathetic Penny

From unknown to infamous in a matter of days with an embarrassing debate performance on Friday, Penny Mordaunt failed to impress anyone with her proposals. Similar to Truss, unfunded tax reductions plague her agenda. A 50% cut in VAT for petrol and increasing tax thresholds are amongst her plans to grow the economy. Due to the price inelasticity for demand of petrol, reducing this levy would likely not prompt the sudden spike in demand that would be inflationary. However, it remains that this move isn’t paid for through lower spending or tax increases. When asked directly by Sunak, Mordaunt failed to answer – instead mumbling incoherently. Government spending is funded in one of three ways. Higher taxes, institutional investors purchasing gilts, or the Bank of England purchasing bonds – the latter of which is equivalent to inflation. As potential voters flee from supporting Penny, it is no wonder she has fallen so dramatically in the polls, given her economic illiteracy.

Responsible Rishi

The only candidate with a credible plan to guide the ship that is the British economy through these turbulent waves is Rishi Sunak. Armed with a wealth of experience, having worked previously at Goldman Sachs, Sunak is the sole candidate promising a return to fiscal conservatism. Under the successful Conservative-led coalition, reducing the deficit was the sole priority – resulting in high investment, low inflation, and strong economic growth. Between 2010 and 2015 with the deficit-reduction plan, the UK boasted the strongest growing economy in the G7 (alongside the US), inflation at 0% by 2015, and the deficit slashed by 67%. Whilst some taxes, including VAT, were raised to facilitate this, the subsequent increases in investment and low inflation meant rising real household incomes and prosperity.

Sunak is promising a return to these fiscally responsible measures. Unlike the others, Sunak has costed spending and tax measures that will bring down the deficit across his tenure. The 2.5% National Insurance levy will ensure healthcare is properly funded, accommodating for an ageing population. Borrowing won’t rise, as this greater health spending is costed and paid for through tax increases. Sunak promises to continue making efficiencies within the public sector – a policy rigorously pursued by the Coalition. Slashing Whitehall staff figures by 20% is one of many measures to ensure this takes place. Cutting the deficit and reducing borrowing will reduce the burden of inflation, removing the hidden tax that is devastating families across the UK.

Ultimately, the leadership election represents a pivotal time for the UK. Do we want a return to the fiscal irresponsibility similar to that under Labour, with deficit spending provoking ever-climbing inflation and falling real incomes? Or a return to responsibility, getting borrowing under control all the while making public sector efficiencies, paving the way for future tax reductions once inflation is under control. The choice is stark – yet clear.