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Boris Johnson's tax cuts: who really benefits most?

Tom Belger
·Finance and policy reporter
ROCESTER, STAFFORDSHIRE - JANUARY 18: Boris Johnson delivers a speech at JCB World Headquarters on January 18, 2019 in Rocester, Staffordshire. After defeating a vote of no confidence in her government, Theresa May has called on MPs to break the Brexit deadlock by conducting cross-party Brexit talks. The speech by the former Foreign Secretary is being widely acknowledged as a Tory leadership bid. (Photo by Christopher Furlong/Getty Images)
Tory leadership contender Boris Johnson. Photo: Christopher Furlong/Getty Images

Boris Johnson’s pledge to cut income tax would disproportionately benefit wealthy pensioners, according to the director of a leading think tank.

The frontrunner to be the next Conservative party leader and UK prime minister unveiled plans to reduce tax bills for up to three million higher earners on Sunday.

Johnson’s proposals would see Britain’s higher 40% income tax rate only applied to earnings over £80,000, rather than the current threshold of £50,000.

He would pay for the tax cuts partly by increasing national insurance contributions, but higher earners over state pension age would benefit most as they do not pay national insurance (NI).

Critics said the reforms were “targeted on the majority of Conservative party members,” who Johnson must win over in a ballot to secure the party leadership this summer.

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Johnson said he would increase employee national insurance payments in line with the new £80,000 threshold, as well as using Treasury funds set aside for a no-deal Brexit.

Paul Johnson, director of the widely respected Institute for Fiscal Studies (IFS), told BBC Radio 4’s Today programme: “It’s worth saying the group who would benefit most would be higher-income pensioners, who don’t pay national insurance at all.

“There’s a particular group who do particularly well, and that’s those over the age of state pension age with more than £80,000 a year.”

He added: “The net cost would be in the order of £10bn a year. That’s obviously a lot of money. It helps the top 10% highest earners.”

He also called for Johnson and other candidates to spell out their “overall fiscal and economic strategy” after a decade of public spending cuts.

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The former mayor of London and foreign secretary told the Telegraph the measures would help the “huge numbers that have been captured in the higher [tax] rate by fiscal drag.”

Paul Johnson, who pointed out he was “no relation” of his namesake, noted the number of taxpayers affected by the 40% rate had risen “dramatically” over the past two decades as incomes rose faster than tax bands.

The proposals immediately came under fire from the Tory frontrunner’s critics both within and outside his own party.

Liberal Democrat MP Ed Davey tweeted that it was “no surprise” the measures would help better-off pensioners given Johnson had to win over typically older and wealthier Conservative members.

Nicky Morgan, chair of the Treasury select committee and a supporter of Johnson rival Michael Gove, said: "The question for Boris is why is this a priority when you could be obviously lifting more people out of paying income tax - the lower rate taxpayers - or you could be give people receiving child benefit an extra £15 a week."

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