Why Conservative Tax Cuts Are Dangerous Right Now

July 11, 2022 | By Paul Mackenzie Ross | Filed in: finance, politics.

Boris Johnson hasn’t actually stood down yet, he’s only stated that he intends to. His track record on telling the truth aside, this means there should be a new Conservative leader and Prime Minister fairly soon, but I won’t hold my breath…

This “resignation” has triggered a race for hopefuls to chase for the “top job” in the UK, but what has been the biggest talking point amongst the contenders?

Tax.

Amidst a cost of living crisis, the leadership challengers seem to all be hoping that the simple act of reducing taxes will win over the vote. Of course, the public have no say in who eventually gets to be the top dog, so unfortunately this contest is only by Conservatives for Conservatives. Yet there is a very public face to all this, as with the polished and cringe-worthy video from former Chancellor, Rishi Sunak.

Apparently, Boris Johnson and Rishi Sunak had very different ideas on tax. As soon as Sunak handed in his notice last week, there were media stories to this effect. Sunak famously raised National Insurance contributions (I for one am £30 a month worse off for it, in my pay packet) whilst Johnson apparently believes that tax cuts will boost the economy.

And this is the fundamental issue going forward.

Cut taxes.

Michael Green, sorry, Grant Shapps seems to have been the most vocal about slashing taxes. Yet Jeremy Hunt has also said he’d cut taxes but in a more measured manner. Only Sunak has said it’s too early to be talking of tax cuts.

Why?

Have you seen the national debt?

General government gross debt as a percentage of gross domestic product (GDP), UK, March 1975 to March 2021

General government gross debt as a percentage of gross domestic product (GDP), UK, March 1975 to March 2021

For the tax year 2007/2008 UK government debt was just 40.5% of GDP.

In 2008/2009 we had “the great recession” and quantitative easing under Gordon Brown’s Labour government, meaning that figure jumped to 51.8%. By the end of his tenure, that figure was a whopping 68.6%, and since then it has grown, initially peaking at 84.9% under David Cameron’s leadership, but has now hit an incredible 103.6% under Johnson/Sunak, although Sajid Javid oversaw some of this during his term in the Exchequer role.

So there you have it – government debt is now an eye-watering 103.6% of GDP.

But what is the level of UK government indebtedness?

It’s £2,382.8 billion.

That’s nearly £2.4 trillion.

The UK government is in debt to the tune of nearly two and a half trillion pounds!

And, as with all debt, it has to be repaid and it’s earning interest. In May 2022 the interest payment was a record £7.6 billion. So much for splashing out £350 million a week on the NHS that was supposed to be saved from going to the EU instead. That alone only amounts to £1.5 billion a month.

So, when we’re indebted to the tune of £2.4 trillion, with monthly repayments of £7.6 billion, do you think it’s a good time to be cutting the tax revenues that help to pay off the national debt?


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