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18 November 2019

Why Boris Johnson is U-turning on tax cuts

The Prime Minister's decision not to slash corporation tax serves two electoral imperatives.

By Patrick Maguire

Boris Johnson has used a speech to the Confederation of British Industry to make what might be the most consequential announcement of the election campaign yet: if returned to government, the Conservatives will keep the corporation tax rate at 19 per cent rather than cutting it to 17 per cent as planned. 

It is the second big U-turn that the Prime Minister has made on tax in as many days. In an interview with yesterday’s Sunday Telegraph, Johnson said the Tories would not raise the threshold for the 40p rate of income tax from £50,000 to £80,000, and would instead prioritise reducing the tax burden on lower earners. 

Both decisions rather undermine – and, indeed, directly contradict – the leadership pitch Johnson made to Conservative MPs and members, which set out a vision for a low-tax economy, as well as flying in the face of Tory orthodoxies on the economy more generally. In one speech during the leadership campaign, Johnson went as far as to argue: “Every time corporation tax has been cut in this country it has produced more revenue.”

So what is he playing at? Just as promising sweeping tax cuts makes sense for any Tory wanting to woo their own party, there is a clear electoral logic to disavowing that approach now. Freezing rather than cutting corporation tax, for instance, allows Johnson to make a big show of investing £6bn in revenue that would have otherwise been forgone in public services – namely the NHS, police and schools.

The Tories will also hope that it goes some way to neutralising Labour’s populist attack on the Prime Minister as a lickspittle of big business. Indeed, it is first and foremost intended as a signal to those must-win Labour voters in Leave constituencies in the north and midlands that Johnson really is – whatever Corbyn might say – a different kind of Conservative. 

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It is also a testament to the influence of the only cabinet minister guaranteed to survive in post should Johnson return as Prime Minister: Sajid Javid. Despite his Thatcherite instincts, the Chancellor’s spending review blocked wholesale tax cuts and instead prioritised spending rises. His worry was that pursuing both risked jeopardising what remains of the Tory reputation for fiscal rectitude. Maintaining it is another electoral imperative.