In promising to deliver “the biggest income tax cut since Margaret Thatcher’s government”, Rishi Sunak is inviting direct comparisons between himself and his great hero Lord Lawson.
It was Lord Lawson who, as plain Nigel Lawson, slashed income tax rates, turned a budget deficit into a budget surplus, and stimulated an economic boom as chancellor from 1983 to 1989.
There are certainly similarities between the two men: both had disagreements with their prime minister over economic policy, both favoured cuts to public spending, and both prioritised bringing down inflation.
But Lord Lawson did not introduce the highest tax burden for 70 years, and he cut National Insurance rather than increasing it.
With postal ballots about to be sent out to Tory members, Mr Sunak has suddenly announced a headline-grabbing intention to cut the basic rate of income tax from 20p in the pound to 16p by the end of the next Parliament if he becomes prime minister and the Tories win the next general election.
His supporters will hope this will be the game-changing moment that finally closes the gap on the leadership race front-runner Liz Truss, but they will be entitled to ask: if this was the plan all along, why did he wait until now to unveil it?
The entire narrative of the leadership contest has revolved around Ms Truss’s promise to cut tax now to stimulate growth, versus Mr Sunak’s “jam tomorrow” policy of raising taxes in the short term to keep inflation under control.
Mr Sunak has accused Ms Truss of “fairy tale” economics for wanting to cut tax, so supporters of Ms Truss will no doubt accuse him of desperation in announcing his own plan to cut income taxes, which comes on top of last week’s about-turn over VAT on energy bills. At the very least, the message of the Sunak campaign has become desperately muddled.
Mr Sunak’s claims are also questionable. A 4p cut to the basic rate would be less than the 5p which George Osborne cut from Gordon Brown’s 50p top rate, albeit that a cut to the standard rate would apply to more people.
The fact that National Insurance has been increased by Mr Sunak by 1.25 percentage points means that a 4p cut would only be a 2.75p net reduction, even before the effect of “stealth” taxes is taken into account: the thresholds at which higher tax rates kick in have been left unchanged despite inflation, meaning more and more people are being dragged into higher tax bands as average wages increase.
In contrast, the tax cuts delivered by Lord Lawson were truly revolutionary: not only did he reduce the basic rate from 30p to 25p, he also cut the top rate from 60p to 40p.
Mrs Thatcher’s gruff former press secretary Sir Bernard Ingham, now 90, was so surprised to hear that Mr Sunak had a picture of Lawson in his study at 11 Downing Street that he suggested he remove it, saying: “Has the man gone mad?”
Sir Bernard suggested Lord Lawson was “altogether too complex” to be a role model for any chancellor, suggesting Mr Sunak did not really understand events that happened when he was a schoolboy. He also said Lord Lawson would never have been so naive as to impose tax increases on an already stretched British public while his wealthy wife was claiming non-domiciled tax status, as Mr Sunak did.
To be fair to Mr Sunak, Lord Lawson’s son Dominic has praised his stance and compared him favourably to his father.
In 1980, a year after Thatcher came to power, inflation was running at 18 per cent. Between them, Sir Geoffrey Howe and his successor Lord Lawson got rates down to 3.4 per cent in 1986 – still way above today’s target rate of 2 per cent – because they, like Mr Sunak, wanted to get inflation under control before cutting taxes.
How does Mr Sunak propose to pay for his tax cuts? Through “forecast economic growth”, the go-to response of almost every chancellor in living memory. Forecasts can be wrong and growth is notoriously difficult to predict. World events, such as the war in Ukraine, can render forecasts obsolete overnight.
Mr Sunak’s plan for the economy may or may not be the right one; which of the two leadership contenders has the right plan is entirely a matter of opinion.
But if he is as serious about cutting taxes as he is about wanting to be the prime minister, he should surely have unveiled this new plan on day one.
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( Information from telegraph.co.uk was used in this report. To Read More, click here )