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Boris Johnson's tax cuts set to 'cost billions and benefit the highest earners most'

·Finance and policy reporter
Britain's Prime Minister Boris Johnson is seen in Downing Street in London, Britain September 25, 2019. REUTERS/Henry Nicholls
A think tank says Johnson's tax cuts would benefit high earners most. Photo: REUTERS/Henry Nicholls

The UK prime minister’s tax cut plans would cost £8bn a year and disproportionately help the highest earners, according to a leading think tank.

The richest 10% of British households would receive 75% of the tax giveaway first proposed by Boris Johnson in the Conservative party leadership contest this summer, analysis suggests.

The Institute for Fiscal Studies (IFS) released its assessment of Johnson’s proposals to raise the threshold at which earners start paying the 40% highest rate tax band from £50,000 to £80,000.

It said the move would reverse the trend of three decades of gradually rising higher-rate taxpayers, taking the number down to its lowest level since the current system began in 1990.

Only 3% of taxpayers would be left paying the highest rate, in a significant handout to 2.5 million high earners who would fall out of the top rate.

READ MORE: Why Johnson’s tax shakeup is a massive giveaway to wealthy pensioners - including Conservative voters

But the IFS said the richest 10% of households had seen their incomes drop by around 6% since 2009 through tax and benefit reforms.

Johnson has said previously the move would help those “captured in the higher rate by fiscal drag,” with tax thresholds often remaining static as many earners’ incomes and prices have increased.

He has also said the measures would stimulate the economy, but came under fire from critics including his Conservative party leadership rivals for failing to prioritise lower earners when he first floated the plans.

Johnson has also pledged to raise thresholds for national insurance to cut the amount employees and the self-employed pay, but has not said by how much.

The IFS said the move would cost £3bn for every £1,000 rise in the threshold, with a £17bn hit if the threshold was raised to match the personal tax allowance of £12,500.

Labour shadow chancellor John McDonnell said the plans for tax cuts and national insurance reforms would take up to £20bn a year “from our already decimated public services.”

“This government cannot be trusted with our public services – only a Labour government will end austerity and establish a fair tax system that serves the many, not the few,” he said.

Xiaowei Xu, a research economist at the IFS and an author of the research, said: “Given promised spending increases and growing demographic pressures, taxes are likely to have to rise over the next decade.

“Promising £10bn to £20bn of tax cuts is therefore a major commitment. If you are going to spend that much cutting taxes for those on high incomes or supporting low earners, you could find much better ways of doing so than the policies proposed by the prime minister.

“Cutting national insurance contributions to help low earners is a particularly blunt instrument – raising work allowances in universal credit would deliver far higher benefits to the lowest-paid for a fraction of the cost.’