Jeremy Hunt’s campaign pledges would lead to tax increases or spending cuts, says IFS
Jeremy Hunt woud need to put up taxes, slash spending or increase borrowing to pay for the "expensive" pledges he has made in his campaign to be the next Prime Minister, a major thinktank has said.
The Institute for Fiscal Studies (IFS) said his plans would “exacerbate” already existing pressures on issues such as health and social care and worsen the state of the public finances.
Mr Hunt has vowed to slash corporation tax to 12.5% at a cost of £13bn and boost defence spending by £15bn if he wins the battle against Boris Johnson to succeed Theresa May.
The Foreign Secretary has also pledged to increase the point at which workers pay National Insurance contributions (NICs) and to reduce the interest rate applied to student debt.
According to the IFS, that would cost £3bn per year for each £1,000 that it is raised.
"Raising it to the current income tax personal allowance of £12,500 would cost at least £11 billion per year and take 2.4 million workers out of NICs altogether,” they said.
Elsewhere they said that bringing the level of interest on student loans in-line with the RPI rate of inflation “would cost very little in the short run”.
But they added that given most students aren’t expected to pay back their loans in full, only around the highest earning 30% of graduates would benefit from such a policy.
They say it could boost the public purse to an extent however, with there being more of an incentive for wealthier students and their families to pay their debts upfront.
In their report, the IFS conclude: "Mr Hunt’s policies for higher spending and lower taxes would amplify the long-run challenges facing the UK public finances.
"The UK already faces considerable spending pressures from an ageing population and rising health care costs. Mr Hunt’s combination of policy proposals would exacerbate these pressures and widen a gap in the public finances that will ultimately need to be filled through some combination of higher borrowing, tax increases or cuts to other areas of spending."
The thinktank has already criticised Mr Johnson's campaign pledges, which they said would benefit the better-off.
IFS director Paul Johnson said: “Like his rival, Jeremy Hunt has made some expensive pledges in his campaign to become Prime Minister. Cutting the corporate tax rate to 12.5% could cost £13 billion a year in the short run.
“While the long run cost is likely smaller this is not a tax cut that could pay for itself as some have suggested. More radical relative to recent history is his proposal for a significant increase in defence spending.
“A £15 billion increase, alongside the proposed corporate tax cut, would leave no scope to relieve the pressure on other areas of public spending without tax rises or a fiscal stance which risked putting debt on a rising path."
Meanwhile, Mr Hunt has unveiled another campaign pledge to cancel the student debt of graduates who set up their own businesses.
He said: "If we are to turbocharge our economy and take advantage of Brexit, we need to back the young entrepreneurs who take risks and create jobs.
"I started my own business I still use the lessons that experience taught me - focus, drive and the art of negotiation - every single day.
"I want more young people to have the confidence to take the decision to start their own business, so we create wealth and start thriving as a country again."