Tax cuts proposed by both Truss and Sunak are unfunded. How are they affordable?

Grinning idiots: the tax cuts both Rishi Sunak and Liz Truss have promised will worsen the cost of living crisis and make it impossible for them to fund relief measures for struggling families, a leading think tank has said.

Oh dear, oh dear, it looks like neither Liz Truss nor Rishi Sunak have bothered to think how they will make their tax cuts work.

The politically-independent Institute for Fiscal Studies has said large, permanent tax cuts could make some spending unaffordable as the UK slips into the recession that Tory policies have triggered.

The claim seems to be based on a discredited economic model that says our taxes pay for public spending, meaning if taxes are cut, equivalent cuts must be made in spending.

That’s not true; governments spend according to their priorities and then borrow from the private sector and/or tax appropriately in order to prevent inflation from exceeding targets they have set.

In this case, the end result is the same: if Sunak or Truss is to cut taxes, spending will have to come down or inflation will rise above even the current high level.

And Carl Emmerson, deputy director of the IFS, warned that spending will probably have to increase if the government intends to support families that will not be able to cope with the increasing cost of living and sky-high energy bills.

Truss has pledged to scrap April’s National Insurance rise to help households and cancel a planned rise in corporation tax, while Sunak as promised to reduce VAT on domestic energy bills from five per cent to nothing, and to cut 3p off income tax by late 2029.

Neither has explained how they will deliver this cuts without adding to inflation, although Sunak has said he will not implement his plan until the current inflation crisis has been brought under control.

So it seems they have been building castles in the air, rather than taking the grounded outlook on the economy that the UK needs. It is impossible to bankrupt an economy like ours, that can create its own money – but it seems both Tory candidates are going to try.

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