Tax-cutting is the new rock’n’roll

The glee with which Tory leadership rivals are competing to deliver the biggest tax cuts reminds me of that great Irving Berlin show song, “Anything You Can Do, I Can Do Better”. 

Do you remember the one? Written for the Broadway musical, Annie Get Your Gun, the song is a duet between Frankie and Annie – in which the two boast about how they can do just about every task better than the other, with the memorable line: “Anything you can do, I can do better; I can do anything better than you.” 

The latest Conservative hopeful to claim he can do better than anyone is Nadhim Zahawi, the new Chancellor, who, when launching his personal campaign on Monday to become PM, called for income tax to be cut by a penny next year and to 18p from 2024, in what would amount to a taxpayer saving of £12bn a year. 

Criticising the former Chancellor, Rich, sorry Rishi, Sunak, Zahawi also said he would drop the planned hike introduced last year by Sunak to raise corporation tax to 25 per cent from 19 per cent. He also promised to abolish VAT on energy bills for two years, taking his total tax cuts to around £30bn.

Outflanking Zahawi was another former Chancellor, and more recently health secretary, Sajid Javid. He is now offering a package of tax cuts worth an astonishing £40bn which included bringing forward income tax cuts and scrapping the corporation tax increase. 

Like another leadership candidate, Jeremy Hunt, Javid goes one step further, claiming if he were PM, he would bring corporation tax down to 15 per cent. To cap it all, the health secretary pledged to reverse the increases in National Insurance that he voted for only a few weeks ago. 

Unveiling what he called a “new Conservative economic plan”, Javid claimed that his tax cuts for next year could be paid for within the current fiscal headroom along with new efficiencies within government. If the Conservatives did not change, he added, they would face electoral oblivion.

Others promising the earth are Liz Truss, the foreign secretary, who said a government under her would introduce immediate tax cuts as well as business rate reforms. She was also one of the only candidates who, anticipating criticism of how such cuts would be funded, proposes that the UK’s £2trn debt mountain could be extended on a “longer-term” footing in order to give room to manoeuvre.

Nevertheless, these so-called “fantasy” promises have prompted warnings from several leading economists, claiming the candidates are being irresponsible with the economy so fragile. Indeed, some argue that tax cuts now would feed inflation but that’s debatable.

As the former Treasury mandarin, Lord Macpherson, tweeted mischievously, the contenders were “less the heirs to Margaret Thatcher; more the disciples of Recep Erdoğan. No wonder the £ is under pressure.”

Interestingly, the two candidates – Penny Mordaunt and Kemi Badenoch – who top the latest polls carried out by the ConservativeHome website of grassroots members, have so far been the most circumspect about handing out the candy. 

Both support lower taxes but have not given too much detail or precise numbers; maybe it’s too early in the gunfight to lay out all their ammunition.

While Mordaunt wrote in a Daily Telegraph article this week that she is a small state, low-tax Conservative, she warns that contenders shouldn’t get stuck on superficial questions of tax and spending. Of greater importance, she says, is laying out a broader economic plan that encourages the “four I’s” of investment, infrastructure, innovation and incentives to kick-start growth and stave off a recession. 

Even so, she has pledged to cut VAT on fuel by 50 per cent – funded by higher revenues – and raising personal income tax thresholds when the time is right. Her nod to localism, by name-checking both Andy Street and Ben Houchen – was smart.

Launching her campaign today, Badenoch promised honesty about the scale of the economic problems ahead. She doubled down on unproductive government departments and cutting wasteful spending while she homed in on the burden on companies of achieving net-zero, particularly in the poorer parts of the country. The net-zero ambition, she has said, is a case of “unilateral economic disarmament” and should be watered down.   

This leaves only one of the contenders who refuses to take a starring role in the “Anything You Can Do, I Can Do better” musical: Rishi Sunak, the former chancellor who triggered the leadership challenge with his dramatic resignation last week. Was it really only last week?

After months of resisting calls from Boris Johnson to cut taxes – without spending cuts to balance the books – Sunak is stuck with telling fellow MPs that they mustn’t believe the “fairy tales” being put around by his rivals. 

Sunak’s vote-catcher is to make a virtue of his hairshirt – or should that be hoodie – to argue that tax cuts now would break fiscal rules, and the 2019 manifesto pledge to balance the current budget by the middle of the decade. 

Although Sunak has claimed he is by persuasion a “low tax conservative”, it’s a tough one for him to back up, as under his chancellorship taxes are at a 70-year-high and the tax burden is likely to reach 36 per cent of GDP by 2024. 

He was also one of the few in Cabinet to push for a rise in National Insurance contributions – pushing up the tax burden to 3 per cent of GDP – while hiking corporation tax to balance Johnson’s spending spree. If he was such a low taxer, his critics suggest that he should have resigned last autumn, moving to the backbenches to lead a more disciplined rebellion against Johnson. Or resisted calls to impose a windfall tax on the oil and gas giants. Yet he didn’t – he went with the Treasury groupthink and took the populist line. But that, as they say, is history.

It’s not surprising that tax – or more precisely corporation tax – has become such an arms race for the Tory rivals. With the cost of living soaring and energy bills set to rise again this autumn, all the contenders know that presenting a coherent plan to tackle the economic gloom is a top priority for grassroots members, and indeed the wider public. 

What’s more fascinating is that stopping the corporation tax hike – or slashing it back to 15 per cent – has become such a battleground for politicians. It’s interesting because most of the businessmen and women I speak to don’t see it as such a defining – or vote-winning – issue. Of course, they would like to see lower taxes – who wouldn’t, if they are honest – but it’s not one they would go to the wall to champion. 

Sunak’s corporation tax hike is not as brutal as it seems at first glance: the rise will not be applied to companies which make less than £50,000 pre-tax profit a year. The rate rises between £50,000 and £250,000 and only kicks in if a company makes more than £250,000. 

What’s of far more importance for business than fiddling with tax rates is consistency. One FTSE chairman put it more bluntly: “Businesses, like families or anyone for that matter, want a stable environment in which they can plan for the next few years without taxes jumping up and down.

“A clear plan is what we desire most from any government and not the f*** business attitude we have had from Johnson for the last few years. We want to see taxes simplified, more incentives for capital investment and a stable background, rather than constant fiddling. That’s how we will improve productivity, the Holy Grail. Confidence, confidence and more confidence. That’s what the UK’s millions of small business owners need most.” 

Which of the contenders can sing to that tune?