AAT casts doubt over Boris Johnson’s tax and spend plans

The AAT  (Association of Accounting Technicians) has questioned the affordability and value of Boris Johnson’s tax and spending proposals, as the Uxbridge MP continues his bid to become Prime Minister.

AAT called on Johnson to limit his ambition to strongly raise the higher-rate income tax threshold and warned that there are huge cost implications for various other spending commitments he has made, vital or not as they may be.

“The proposals being put forward by Boris Johnson are very expensive and benefit only the highest 5% of income earners – who are mostly men in London and the south east,” said Phil Hall, head of public policy and public affairs at AAT.

The proposed lift in the rate at which workers will pay 40% income tax from £50,000 to £80,000 would come at a cost of around £9 billion to the Treasury. AAT said they accepted that there was considerable erosion of the personal allowance in the first decade of this century, but increases since 2010 mean the personal allowance has now risen considerably and that tax thresholds are about right as they are.

“As AAT made clear in its response to the 2018 Budget, after a period of fiscal drag, the tax thresholds are now about right. Any further increases in the higher rate tax threshold should be limited to annual increases in line with the Consumer Price Index (CPI) and no more,” Hall added.

While Johnson’s income tax proposals have garnered the most attention in recent weeks, he has also set out a number of eye-catching spending commitments. However, the AAT remain less than convinced that the plans are realistically achievable.

£1bn for extra police

On policing, Johnson committed to delivering an extra 20,000 police officers at an estimated cost of £1.1bn. While the idea was welcomed in principle, Hall was quick to find the holes in the Tory MP’s policy. 

“The promise of more police officers will have an annual cost of more than £1bn – a figure that many will see as a price worth paying. However, it isn’t as simple as providing the money, and extra officers being in place. First there needs to be sufficient demand for those jobs, then there is a substantial lead time for recruitment, longer still for training and at the same time officers will continue to leave meaning you have to recruit more just to stand still,” Hall said.

“If pursued, the cost of this commitment will almost certainly increase in the short-term, let alone the medium to long term,” he added.

Spending cuts in education are keenly felt

On education, Johnson has committed to reversing spending cuts. Almost a third of English secondary schools reported deficits last year, and school spending has fallen by 8% per pupil in real terms this decade. But to do this is an expensive promise and AAT remains unconvinced he can deliver on all these costly promises.

“Reversing spending cuts and investing more on schools will be a popular decision and a potential vote winner but it does not come cheap, with a £4.6bn additional price tag for primary and secondary schools by 2022-23,” said Hall.

Plans to “unleash” fibre broadband by 2025

The government has previously committed to ensuring full fibre broadband is available to all homes and businesses by 2033. Johnson has committed to going much faster, wanting to “unleash full fibre for all by 2025.” But this could cost as much as £34.5bn, according to a cost analysis commissioned by the National Infrastructure Commission – and that didn’t consider the extra costs of achieving the objective eight years ahead of schedule. Hall described the plans as “beyond ambitious”, with a “myriad of regulatory hurdles”.

“The need for greater full fibre broadband access is obvious. The productivity benefits are huge, and it will eradicate a digital divide that isolates rural communities, but it will also cost a very large sum of money and is beyond ambitious in scale. The £34.5bn cost of full fibre will likely rise as short-term labour costs, the complexity of the civil engineering process and myriad regulatory hurdles have to be overcome.”

Significant tax savings can be made to help funding

AAT is increasingly concerned about Johnson’s tax and spend policies, but believes further savings can be made. They argue that Johnson has suggested that his various spending commitments come from the newly created “fiscal headroom” (the difference between the current UK budget deficit and spending) which currently stands at 1.2% of GDP, around £26.6 billion. However, spending commitments made so far already exceed any fiscal headroom. Where else could funding be found if borrowing or taxes are not to increase?

Instead, AAT suggested following its plans for £27bn of tax savings if Johnson’s commitments are to be followed through.

“Last year AAT identified £27bn of annual savings that could be made by making changes to pensions tax relief, increasing the age at which certain benefits are paid and utilising technology in place or fuel duty, road tax and VAT on fuel, amongst various other measures. Boris, and whoever he decides to install as Chancellor, should consider some of the proposals included if they are serious about investing more without damaging the economy.”