The Institute for Fiscal Studies (IFS) has analysed the financial promises made by both hopefuls in the Conservative party leadership race and have concluded that Jeremy Hunt’s plan to reduce the rate of corporation tax would cost 13 billion a year in the short term.
According to Mr Hunt, who also wants to increase the point at which workers pay National Insurance (NI), increase spending on defence and cut the interest on student debt, the moves would “turbocharge the economy, attracting inward investment and driving growth”.
However, the IFS dispute this, claiming that the Foreign Secretary’s plans would leave no scope to relieve the pressure on other spending departments without tax rises or risking higher borrowing.
In its analysis of the other pledges, the IFS has worked out that raising the NI threshold would cost at least three billion pounds for every £1,000 it is increased, so raising it to the same level as income tax, which is £12,500, would cost £11 billion a year.
Meanwhile, increasing defence spending from two per cent of GDP to 2.5 per cent would cost £12 billion more but in the past, Mr Hunt has talked about doubling it to four per cent, which would cost £40 billion a year extra.
Finally, cutting interest rates on student loans would cost a billion pounds more, the IFS said, taking the total bill for the moves to between £37 billion and £65 billion and widening a gap in the public finances that the IFS say would “ultimately need to be filled through some combination of higher borrowing, tax increases or cuts to other areas of spending.”
Boris Johnson’s promises fared no better under IFS scrutiny, with an analysis of his tax plan being described as one that would cost “many billions” and benefit the wealthy the most.