LONDON (Reuters) - Boris Johnson and Jeremy Hunt are competing to bolster their bids to become Britain’s next prime minister by proposing higher public spending and tax cuts which would represent a sudden relaxation of the country’s tight grip on the public finances.
Johnson, the favourite and a former London mayor, has vowed to spend an estimated £31 billion on tax cuts, public sector pay rises and better education, while Foreign Secretary Hunt has made pledges costing £40 billion.
Hunt plans to slash corporation tax and spend on defence.
Both men have said they will tap into the £27 billion of “fiscal headroom” that has built up in the public finances, referring to the difference between the government’s target for the budget deficit and its projected size, which is lower.
Finance minister Philip Hammond has warned the two candidates that their plans would cost more than the headroom in his budget.
Furthermore, Johnson and Hunt say they would take Britain out of the European Union with no transition deal if necessary, something the government has said would lead to a 95 billion-pound hit to the public finances each year by the mid-2030s.
Following is a summary of the main fiscal proposals and suggestions by the two candidates and their potential annual cost, based on estimates by the Institute for Fiscal Studies, a think tank, and other analysts.
The candidates have not provided details for some proposals such as raising the threshold for National Insurance Contributions, so the estimates are based on assumptions.
- Increase the income tax higher-rate threshold to £80,000 from £50,000 - £9 billion
- Raise the threshold at which people start to pay National Insurance - £11 billion if the threshold for employees and self-employed is raised to £12,500 a year. Raising the threshold for employers too would cost more
- Raise school spending with an overall package of around £4.6 billion.
- End public sector pay freezes - £5.4 billion if pay goes up by 3%.
- Hire an extra 20,000 police officers - £1.1 billion
- Cut 19% corporate tax rate to 12.5% - £13 billion. Hunt has said this is the only immediate spending commitment he would deliver in the event of a no-deal Brexit
- Raise the threshold at which people start to pay National Insurance Contributions - £11 billion if the threshold for employees and self-employed is raised to £12,500 a year. Raising the threshold for employers too would cost more.
- Raise defence spending - £15 billion
- Cut the interest rate on student loans to RPI rate of inflation - £1 billion
Reporting by Guy Faulconbridge and William Schomberg; editing by Kate Holton and Stephen Addison