Conservative manifesto proposals would mean tax cuts of £170 for a typical employee – but plans rest on £33 billion of spending cuts in order to get debt falling

Tax changes pledged in the Conservative Party manifesto today (Tuesday) would mean a typical employee seeing their personal tax bill fall by £170 in 2028-29. But these pledges rely on making £12 billion of welfare cuts that recent history suggests will not be achievable over the next Parliament. This, along with £21 billion of cuts to unprotected departmental spending, will be required to meet the stated aim of getting debt falling by five years’ time – raising big questions over whether this tax and spend package passes the plausibility test, the Resolution Foundation said today.

The single biggest tax cut announced today was another 2p cut to employee National Insurance, costing £10.3 billion a year by the end of the next parliament. This would take the rate down to 6 per cent – less than half the 13.25 per cent rate that was in place as recently as September 2022, before then Prime Minister Liz Truss cancelled the Health and Social Levy. The cut would result in a typical employee having the lowest effective personal tax rate since at least 1975.

The combination of this latest cut, which delivers a tax cut of up to £750 for someone on £50,000, coupled with already announced freezes to tax thresholds that are coming in over the next parliament, mean that a typical employee earning £30,000 would see their personal tax bill fall by £170 a year by 2027-28.

Total tax giveaways announced in the manifesto today amount to £17.2 billion a year by the end of the decade. RF analysis of these tax cuts (which excludes the one-off Stamp Duty cut for first-time buyers) shows that the biggest gainers overall are the richest fifth of households, who are set to gain £1,300 on average, compared to the poorest fifth who would gain £150.

The tax cuts announced today would still leave overall taxes going up after the election, but by £5.7 billion a year by the end of the parliament, a rise of £190 per household, much less than the £23 billion rise baked into plans at the time of the Budget. This leaves the tax-to-GDP ratio rising to 36.7 per cent – its highest level since 1948.

The Foundation adds that the precarious state of the public finances means that these new tax cut pledges are being funded through £12 billion of poorly defined benefit cuts, and an unspecified £6 billion clampdown on tax avoidance.

The Conservative Party has provided little detail on how it would deliver these cuts to social security, but have indicated that the focus would be on health-related benefits like Personal Independence Payments (PIP) and the Limited Capability for Work-Related Activity element of Universal Credit (UC).

Reducing spending on PIP by £12 billion would imply a cut of 40 per cent which would be extremely challenging to deliver, not least as it would likely involve cuts to the entitlements of existing claimants. Were the savings instead to be made entirely via reducing the PIP caseload, it would mean 1.6 million fewer people than forecast would be in receipt of the benefit by the end of the next parliament.

Recent history gives us reason to doubt that savings on this scale can be delivered. First, the introduction of PIP saved £0.1bn in 2015-16 – just 7 per cent of the £1.4bn that was originally expected to be saved by the end of the parliament. Second, the Conservative government previously announced £12 billion of unspecified welfare cuts in its 2015 Manifesto, with details following in July 2015, followed by a U-turn on important aspects of cuts to tax credits by October 2015 – six months before any cuts were actually delivered.

The tax and spend pledges announced today sit on top of already announced tax rises worth £23 billion, and an implied £21 billion cut to unprotected departments (given today’s commitment to increase defence spending), all of which would be needed for an incoming Conservative government to meet its key fiscal rule of having debt fall as a share of the economy in five years’ time (a rule reaffirmed in the manifesto).

This would leave the next parliament as a whole as one of modest tax rises, major spending cuts, and heroic efforts on the part of both HMRC and DWP to find £6 billion of extra tax avoidance and benefit cuts in nine months’ time. The Foundation cautions that even if this were to be achieved, if key fiscal risks – such as lower productivity growth – become fiscal reality then this could blow another £17 billion hole in these plans.

This could leave an incoming Conservative government having to deliver these extremely challenging spending cuts, cancel some of these promised tax cuts, or break manifesto commitments on no new tax rises or getting debt falling.

Mike Brewer, Interim Chief Executive of the Resolution Foundation, said:

“The Conservatives have trebled down on making employee National Insurance rate cuts the centrepiece of their manifesto. This is a welcome focus for cutting taxes compared to the alternatives being mooted, but it’s a stark reversal from Autumn 2022, when then Chancellor Sunak proposed raising it to 13.25 per cent to fund social care.

“Furthermore, given the weak state of the public finances, these fresh tax cuts rest on already announced tax rises, heroic efforts to reduce tax avoidance, and £33 billion of combined cuts to disability benefits and public services that will be extremely challenging to deliver. That may explain why there is scant detail on these cuts.

“There are big questions over whether doubling down on firm tax commitments, funded by pledges to massively cut spending in record time, really passes the plausibility test, or whether this approach answers the big economic challenge Britain faces on growth.

“The unspoken issue looming over this manifesto is that it will only take a small dose of bad economic news for these plans to fall foul of the fiscal rules, and for a future Conservative government’s tax and spend plans to have to return to the drawing board.”

Notes to Editors

  • The Foundation’s distributional analysis of tax cuts in the Conservative Manifesto today includes: the 2p cut in the employee NI rate; the abolition of NI for the self-employed; the restoration of Child Benefit to 700,000 well-off families; and, the increase in the Income Tax personal allowance. It excludes the Stamp Duty cut for first-time buyers.
  • The OBR costs of projected and realised savings from the introduction of PIP can be found in Para 5.45 of its Welfare trends report in October 2016.