A proposal by Conservative party leadership hopeful Boris Johnson to reduce the income tax bill of the country’s highest earners has been labelled “half-baked” and “pretty naked electioneering” by investment commentators. 
With the Conservative leadership contest starting to get underway after Theresa May stepped down at the end of last week, the 11 MPs that have said they plan to run to lead the party – and take the mantle of UK prime minister – have begun laying out their stalls.
In an interview with the Daily Telegraph, Johnson said he would raise the 40 per cent tax rate threshold to £80,000 (up from its current £50,000) if he wins the contest to succeed May. The newspaper estimates the move would cost £9.6bn a year.
Conservative Party leadership contest timeline
Source: Conservative party, BBC
“We should be raising thresholds of income tax so that we help the huge numbers that have been captured in the higher rate by fiscal drag,” said Johnson said.
The former foreign secretary said the plan – which would cut tax bills for around three million people – would be partly funded by a pot put aside by the Treasury for a potential no-deal Brexit. An employee in National Insurance payments in line with the new income tax threshold would also fund the initiative.
Johnson is currently the frontrunner to win the Conservative party leadership bid, which is planned to be decided through a series of ballots and a vote by party members by the week commencing 22 July.
However, the pledge has drawn criticism from the UK’s investment community.
Nigel Green, chief executive of deVere Group, said: “I’m normally in favour of reducing taxation – more money back in people’s pockets is always a good thing for individuals, households, businesses and the wider economy.
“I’m firmly of the opinion that soaking the rich, waging a war on wealth and taxing the wealth and job creators out of the country is simply misguided on many levels.
“However, I believe that the UK’s likely next prime minister’s vow to cut income tax for higher earners is half-baked at best.”
Green argued that Johnson’s tax cut for higher earners – which he labelled as “a direct plea” to those eligible to vote for him to become leader – is an ill-thought-through endeavour.
He suggested that it would come with a significant net cost for the Treasury and, in any case, would be unlikely to get through parliament. “It’s therefore just Boris virtue signalling to his base,” he added.
The deVere Group chief executive concluded his attack on the MP’s plans with: “Someone who famously said ‘f**k business’ is arguably not the most economically savvy person, since it’s private sector activity that provides the growth that drives tax revenue for increased spending on the NHS, education, police and other public services.
“Unfortunately, Mr Johnson looks set to destroy the Tories’ greatest claim on the electorate: economic competence.”
Jim Wood-Smith, chief investment officer for private clients at Hawksmoor Investment Management, was also critical of Johnson’s suggestion.
He suggested that the next few weeks of the leadership contest will be “a time of vacuous and possibly inflammatory soundbites, characterised by a communal lust for power”.
“Is it just me, or is there something just completely wrong with Mr Johnson’s proposal to become prime minister by giving tax breaks (bribes?) to voting members of the Conservative party?” Wood-Smith said in his weekly note.
“A raising of the higher rate band indeed; no point in raising the basic rate band as this might waste money on poor people, and they vote for Jeremy Corbyn. The song remains the same, but surely the world has moved on from this?”
Tom Selby, senior analyst at investment platform AJ Bell, pointed out that there was always going to be “some pretty naked electioneering” aimed at core Conservative voters once the leadership race got underway and said it should be of little surprise that Johnson would be among the first to make his move.
The most obvious consequence of the proposal would be a drastic reduction in the income tax bills for those earning between £50,000 and £80,000, although the benefits of this would be tempered to some degree by higher National Insurance contributions (NICs).
“Retirement savings incentives would also be affected, with tax relief on contributions for those earning between £50,000 and £80,000 dropping from 40 per cent currently to 20 per cent,” he continued.
“Of course, the combination of matched contributions from their employer, NICs relief and tax-free investment growth over time mean there would still be every reason for this group of people to save in a pension.”
Higher-rate taxpayers who are above state pension age and thus don’t have to pay NICs at all would likely be the biggest winners from the policy, the analyst noted.
“One interesting thing to note is that MPs’ salaries currently stand at £79,568, meaning they would benefit significantly from this tax cut,” Selby concluded.
“Only Johnson himself knows the extent to which it influenced his decision in proposing a new threshold just above this level.”