Tory leadership race: Tax cut pledges are unrealistic, says IFS

Image source, Getty Images

Conservative leadership candidates' pledges to slash taxes are unrealistic if they don't match spending cuts, according to a think tank.

According to the Institute for Fiscal Studies, large, permanent tax cuts could add to pressures on the public purse.

Both Sunak and Truss have promised tax cuts, but they don't say how much they'll cost.

On 5 September, the UK will find out who its next leader is.

The cost of living will be one of the biggest challenges for whoever succeeds Boris Johnson.

Consumer prices continued to soar in July, with inflation hitting 10.1%, a new 40 year high. The rising cost of living is eating into the household budget.

The Bank of England has warned that high prices will cause the UK to go into recession, with the economy expected to shrink in the last three months of 2022.

Two-thirds of UK households could be in fuel poverty this winter according to a University of York study.

The Foreign Secretary has pledged to scrap April's National Insurance rise and cancel a planned rise in corporation tax.

She believes high taxes could potentially choke off growth.

VAT will be reduced from 5% to zero and income tax will be cut by 3p by late 2029.

He says that he will only cut taxes once we've gripped inflation and that those on low incomes won't be helped.

The plans of the two candidates would be impossible without spending cuts, according to the deputy director of the Institute for Fiscal Studies.

He said that the tax cut promises are unrealistic unless they are going to set out detailed, deliverable spending cuts.

Given the pressures on households with energy bills, there will be a need for more spending.

Image source, Getty Images

It was suggested that short-term government borrowing could be used to help families.

He said that large, permanent tax cuts were hard to square with the candidates' promises to manage the nation's finances in a responsible way.

The Office for Budget Responsibility said last month that UK government debt is unsustainable because of inflation and other factors.

Ms Truss and Mr Sunak's tax plans were concerned by the Institute for Fiscal Studies.

In its report, the think tank predicted that high inflation could lead to more public spending and that schools and hospitals would have to raise their prices.

There was no spare public money left to fund large-scale tax cuts.

The Sunak campaign said that his tax plans were funded and that the research supported his approach.

Liz's economic plan was driven by the report. A spokesman said that Rishi has made the case that permanent, unfunded tax cuts would cause significant damage to the public finances.

It is not credible for the Conservatives to spend £50 billion on tax cuts at a time of high inflation.

A source for Ms Truss's campaign told the PA that she would use an emergency budget to get her plan off the ground.

Liz will get debt to GDP to fall within three years by cutting taxes. Business as usual won't do because you can't tax growth.