Boris Johnson’s pledge to raise the threshold for the top rate of income tax from £50,000 to £80,000 would cost £8bn a year and boost the incomes of the highest-earning 8% of the adult population, according to the Institute for Fiscal Studies.
The policy would take 2.5 million people out of paying higher-rate tax, more than reversing the increase over the past three decades, the tax and spending watchdog said. About three-quarters of the tax benefit would go to the highest-income 10% of households.
Looking ahead to Treasury plans for a budget in November or possibly early December, depending on the timing of a general election, the IFS added that it would leave only 1.3 million, or fewer than 3% of adults, to pay a higher rate of tax.
Sajid Javid has already committed the government to almost £14bn of extra spending on the police, hospitals and schools following a Whitehall spending review.
Johnson made the tax pledge during his Tory leadership campaign and it is expected to emerge as a central policy whenever the government sets a date for the budget.
The thinktank said it was dismayed that the government appeared to be moving ahead with plans that would widen inequality and cost billions of pounds in extra borrowing.
A plan to offset the effect of the handout to richer taxpayers in the form of an increase in the threshold for paying national insurance would be even more costly, the IFS said.
Johnson said he wanted to raise the level at which workers start paying national insurance, though he did not specify by how much.
The IFS said that for every £1,000 rise in the threshold at which employees and the self-employed pay national insurance contributions, the Treasury would sacrifice £3bn. Raising all NICs thresholds to match the current income tax personal allowance of £12,500 would cost £17bn, it said.
Xiaowei Xu, a research economist at IFS and an author of the report said: “Given promised spending increases and growing demographic pressures, taxes are likely to have to rise over the next decade. Promising £10bn to £20bn of tax cuts is therefore a major commitment.
“If you are going to spend that much cutting taxes for those on high incomes or supporting low earners, you could find much better ways of doing so than the policies proposed by the prime minister,” she said.
“Cutting NICs to help low earners is a particularly blunt instrument – raising work allowances in universal credit would deliver far higher benefits to the lowest-paid for a fraction of the cost.”
