Tax takes centre stage in Conservative Leadership campaign
Tax has taken centre stage in the Conservative Leadership campaign, with two different approaches to tax being taken by the candidates.
Tax has taken centre stage in the Conservative Leadership campaign
The Conservative Leadership campaign is in full swing, with Rishi Sunak and Liz Truss making their case to the Conservative membership to become the next leader of the Conservative Party – and indeed Prime Minister of the UK. Both candidates have staked out their positions on tax. Mr Sunak maintains that tax cuts need to wait until the public finances have improved. In contrast, Ms Truss has committed to cutting taxes from day one to boost economic growth. We outline their tax policies, with the caveat that campaigns are fast-moving, and these policies may change as the race continues.
The ongoing cost-of-living crisis, coinciding as it does with the introduction of the Health and Social Care Levy, meant that tax was always going to be a focal point of the Conservative Leadership campaign.
The final two candidates are both standing on a platform of tax cuts but, as the Institute for Fiscal Studies points out, their policies differ in terms of scale and timing. Other than a temporary and immediate cut to VAT on domestic energy, Mr Sunak believes that taxes should not be reduced until the public finances have improved; Ms Truss is setting her stall on cutting taxes in short order to boost economic growth.
As Chancellor, Mr Sunak announced an increase to the headline rate of corporation tax to 25 percent to be effective from 1 April 2023 and has indicated that he would prioritise further income tax cuts over reducing Corporation Tax. Meanwhile, Ms Truss has indicated that she would reverse the planned rate rise.
Income tax and National Insurance (Health and Social Care Levy)
During Spring Statement 2022, Mr Sunak announced that the basic rate of tax would fall from 20 percent to 19 percent in 2024. Since the launch of his leadership bid, he has emphasised that his focus would be on income tax cuts and has announced that he intends to cut the basic rate even further after 2024, to eventually reach 16 percent by the end of the next Parliament.
If she wins, Ms Truss has committed to reversing the National Insurance increase (the Health and Social Care Levy) that was introduced by Mr Sunak when he was Chancellor.
Tax on energy and fuel
In a change of position from when he was Chancellor, Mr Sunak has vowed to cut VAT on domestic energy bills for a year from October, a measure he has stressed would be temporary. Ms Truss has pledged to lower fuel duty by more than the current 5p per litre.
Other Government priorities
‘Levelling Up’, which aims to address the economic and social imbalances between areas and social groups in the UK, was a key plank of the Conservative Party’s 2019 Manifesto. Upon Boris Johnson’s resignation, there were fears the policy would be dropped. However, recently Ms Truss has expressed her support for key Levelling Up policies, such as committing to building the Northern Powerhouse Rail project and the deeper implementation of Freeports, so that they are “genuinely low-tax.” Mr Sunak has also committed to Levelling Up, including a pledge to give Mayoral Combined Authorities greater flexibility on Business Rates.
Both candidates have also committed to the UK’s Net Zero 2050 target. However, Ms Truss has been focusing on suspending the green levy to tackle the cost-of-living crisis, a position that may dismay climate activists.
As the Conservative Leadership campaign approaches its final weeks, we may well see more tax announcements. Calls to assist with the cost-of-living crisis and boost economic growth will dominate the next Prime Minister’s agenda. Whoever wins, we can expect to see a change in the UK’s tax landscape as tax cuts look likely to play a pivotal role.
What is less clear is the impact this will have on other societal issues such as our aging demographic, climate change and Levelling Up.