Boris Johnson has fought off stiff competition from a crowded field of candidates to take the Tory leadership prize and become the new prime minister. But who will be better off under Boris?
Mr Johnson's proposals have garnered some controversy throughout the campaign, and have included some party-pleasing fiscal policies that could now become reality after his election to the top job.
Though this plan took a bit of a bruising in the debates, and Mr Johnson has seemingly softened his stance, the former foreign secretary has said he would raise the earnings threshold for higher-rate taxpayers to £80,000, up from the current £50,000.
Anyone earning below that level – including MPs, whose pay currently stands at £79,568 – would pay tax at 20pc rather than the current 40pc. The move could benefit up to three million people.
Writing in the Telegraph, Mr Johnson said: “"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.”
Nimesh Shah of Blick Rothenberg, agreed with Mr Johnson, pointing out that in 2009-10, the last tax year of the Labour Government, a person would need to earn over £43,875 before they paid income tax at 40pc, based on a personal allowance of £6,475 plus the basic rate tax band of £37,400.
Over the last 10 years, the point at which someone pays 40pc income tax has only increased by £6,125, or just over £600 per year.
Mr Shah said: "If you were to factor in wage inflation during that 10 year period, it is likely that more people have been dragged into 40pc tax, despite the limit increasing to £50,000 more recently.”
This does not take into account the clawback of child benefit, which was introduced in 2013, which further reduced a family’s net take-home pay.
So how much better off would this leave you?
Under Mr Johnson’s plans someone on a salary of £80,000 would pay annual income tax of £13,500. That is £6,000 less than they pay currently.
Mr Shah pointed out, however, that the tax cut may not be as generous as it seems. Since announcing the bold ambition, Mr Johnson pointed to making changes to National Insurance which, when combined with his income tax plans, would mean wealthier households would on average see disposable incomes rise by £1,790 per year, not £6,000, with no rise at all for the poorest 20pc of families, according to the New Economics Foundation, a think tank.
“If that happened, those who do not pay National Insurance – pensioners and those who live-off their investment income – would be the main beneficiaries,” Mr Shah said.
A more equitable proposal, he said, would be to remove the clawback of the personal allowance, whereby a person loses their tax-free allowance by £1 for every £2 of income earned over £100,000.
He said: “This creates an effective rate of tax of 60pc between £100,000 to £125,000, a facet of Britain’s personal tax system for nearly 10 years that creates significant frustration for taxpayers as well as many considering it be totally unfair.”
Mr Johnson has proposed a plan to overhaul the whole stamp duty system. Reports have suggested he plans to drastically raise the threshold for paying stamp duty from its current level of £125,000 to £500,000 at the same time as lowering the top rate from 12pc to 7pc.
According to analysis by Savills, Johnson’s plans would free over 300,000 property buyers from stamp duty, based on 2018-19 figures. Added to the number of properties sold that are already exempt from the tax, this means that a total of 651,500 transactions from last year wouldn’t have paid stamp duty.
This is equal to 71pc of residential transactions in England and Northern Ireland that would be exempt under the plans.
Mr Johnson's change would mean first-time buyers who would otherwise pay stamp duty, at a reduced rate, on properties between £300,000 and £500,000, pay nothing. First-time buyers buying homes worth over £500,000 would also pay less tax.
The biggest winners would be homemovers buying and selling homes worth under £500,000, who would pay no stamp duty at all.
In an alternative version by think tank Onward, stamp duty could be halved for all homes worth more than £500,000 in a bid to make it easier for pensioners to sell larger homes and make room for growing families. The charge would also be scrapped on all homes under £500,000.
What would the Boris plan cost?
Increasing the higher rate tax band would cost about £9bn, according to the independent Institute of Fiscal Studies (IFS), and only about 8pc of individuals would gain from this change in the short run. Longer term, however, around a quarter of people will, at some point, be higher rate taxpayers or live in a household with one, it pointed out.
Raising the higher rate threshold would take the number of taxpayers who pay it down to its lowest level since 1990, the IFS said, to "constitute a major change to our income tax system".
Conversely, increasing the NICs threshold is, according to the economic think tank, "probably the best thing one can do through the tax system to help low earning individuals", even this policy offers most benefit to higher income households. Increases in tax credits would be significantly more effective if the main intention is to help low earners in low income households, it added.
The move is costly, however, at least £3bn a year for each £1,000 of earnings the NIC threshold is raised, it said. Raising it to the current income tax personal allowance of £12,500 would cost at least £11bn and would take 2.4 million workers out of NICs altogether.
Tom Waters of the IFS, said: “These are expensive pledges to cut tax. These pledges between them will cost many billions of pounds. It is not clear that spending such sums on tax cuts is compatible with both ending austerity in public spending and prudent management of the public finances”
Mr Johnson’s income tax cut would also hit pension tax relief for high earners.
Tom Selby of AJ Bell said that retirement savings incentives would be affected, with tax relief on contributions for those earning between £50,000 and £80,000 dropping from 40pc currently to 20pc.
For example, someone on a salary of £55,000 paying £5,500 into their pension would lose £1,000 in higher rate pension tax relief, and save £1,000 in income tax, meaning a net gain of £0.
However, an employee earning £80,000 making an £8,000 pension contribution would lose £1,600 in higher rate tax relief under Mr Johnson’s plan, but save £6,000 in income tax, so would still be £4,400 better off.
Mr Selby added that the combination of matched contributions from their employer, NI contributions relief and tax-free investment growth over time, “mean [that higher earners] would still have every reason to save in a pension”.
Savills has estimated that raising the stamp duty threshold to £500,000 would cut out around a quarter of stamp duty revenue for the Treasury's coffers, at £2.1bn.
The alternative version of stamp duty plans by the think tank Onward has put the cost at £3.3bn, and would reportedly be covered by new taxes on non-UK resident buyers, vacant homes and people buying second homes.
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