Social Justice

Cutting income tax would be an 'incredibly inefficient' way of dealing with the cost of living crisis

New research shows cutting income tax would mainly benefit the rich - despite what Conservative leadership candidates say.

Tory leadership candidates Penny Mordaunt, Rishi Sunak and Liz Truss.

Income tax cuts would be “incredibly inefficient” at dealing with the rising cost of living, new research shows – unless you’re already wealthy, that is.

Tax cuts have been a major theme of the Conservative leadership race as many candidates have promised to encourage growth and tackle the surging cost of living.

But cutting income tax would only benefit the richest households, the Institute for Public Policy Research (IPPR) has warned – and scarcely help the poorest at all. 

Reducing income tax from 20 to 19 per cent would cost the Treasury around £5billion.

Of this figure, a whopping £2.5bn – 50 per cent – would be handed back to the richest 20 per cent of households.

The poorest, on the other hand, would see a benefit of just £137million – a measly 2.6 per cent of the total figure.

“Tax cuts are an incredibly inefficient way of getting money to those who need it most,” said Henry Parkes, IPPR senior economist.

The evidence is clear, IPPR researchers claim – half the benefit of a 1p income tax cut would go to UK’s richest households, whilst scarcely helping the poorest at all.

“To support those on low incomes through the cost of living crisis, it would be much more effective to provide a higher level of targeted support towards those on the lowest incomes,” Parkes added.  

In cash terms, a one-percent tax decrease would see someone earning £20,000 get an extra £74 a year. Someone earning £50,000 would gain £374 – more than five times as much.

Of the five Conservative candidates vying for leadership, four have expressly committed to slashing tax.

Liz Truss has promised to “start cutting taxes from day one,” a promise echoed by Tom Tugendhat and Kemi Badenoch.

Penny Mordaunt has pledged to cut VAT on fuel, but has said that “wider” economic reform is needed.

Former Chancellor Rishi Sunak has ruled out tax cuts in the short term but he too has promised to introduce them once inflation is down.

“[Rishi] says it’s not a question of if we have tax cuts, it’s a question of when,” supporter Grant Shapps told radio station LBC.

Yet the IPPR urges politicians to use public funds to help those who need a leg-up, not the already-wealthy.

 “There would surely be much better ways to use the £5bn such a tax cut would cost – such as investing in health and social care, retrofitting homes for energy efficiency or strengthening the social safety net for the poorest in our society,” said George Dibb, head of IPPR’s Centre for Economic Justice.

“Even if fully funded, such money could be better prioritised than for a tax cut that would primarily benefit high earners.” 

Support the Big Issue

For over 30 years, the Big Issue has been committed to ending poverty in the UK. In 2024, our work is needed more than ever. Find out how you can support the Big Issue today.
Vendor martin Hawes

Recommended for you

View all
Energy bills are set to fall but UK families have already lost £72bn to 'staggering' prices
energy bills
Energy bills

Energy bills are set to fall but UK families have already lost £72bn to 'staggering' prices

Poverty costs the UK billions each year. Politicians must commit to ending it this general election
Trussell Trust food banks
General election 2024

Poverty costs the UK billions each year. Politicians must commit to ending it this general election

Abuse survivor tried to take her own life after years-long battle with DWP over disability benefits
Pound coins on a piece of paper with disability living allowancve
Department for Work and Pensions

Abuse survivor tried to take her own life after years-long battle with DWP over disability benefits

DWP under investigation over treatment of ill and disabled people after deaths of benefit claimants
Department for Work and Pensions

DWP under investigation over treatment of ill and disabled people after deaths of benefit claimants

Most Popular

Read All
Renters pay their landlords' buy-to-let mortgages, so they should get a share of the profits
Renters: A mortgage lender's window advertising buy-to-let products
1.

Renters pay their landlords' buy-to-let mortgages, so they should get a share of the profits

Exclusive: Disabled people are 'set up to fail' by the DWP in target-driven disability benefits system, whistleblowers reveal
Pound coins on a piece of paper with disability living allowancve
2.

Exclusive: Disabled people are 'set up to fail' by the DWP in target-driven disability benefits system, whistleblowers reveal

Cost of living payment 2024: Where to get help now the scheme is over
next dwp cost of living payment 2023
3.

Cost of living payment 2024: Where to get help now the scheme is over

Strike dates 2023: From train drivers to NHS doctors, here are the dates to know
4.

Strike dates 2023: From train drivers to NHS doctors, here are the dates to know