Do Reform’s £70bn-a-year plans to slash tax and benefits add up?
Caption: Reform UK Party leader Nigel Farage attends the launch of the Reform UK manifesto in Merthyr Tydfil (Source: Reuters)
Reform UK leader Nigel Farage has said his party’s electoral “contract” represents a “serious plan to reshape the way our country is run” at a launch event for the document in Wales.
He stressed that the document he was releasing was not a manifesto but a “contract” with voters, arguing there had been a breakdown of trust in politics where manifesto pledges were frequently broken.
“Which is why today, specifically, is not a manifesto launch,” he added.
The document contains some details of how the party would fund many of its pledges. Here is how much Reform UK says its plans will cost:
Tax and economy
Reform UK claims that its measures to slash taxes would cost around £88bn per year, which includes £70bn in cuts to personal taxes and £18bn in cuts to business taxes. Their key policies are:
- Raising the personal allowance threshold from £12,571 to £20,000
- Raising the stamp duty threshold from £325,000 to £750,000
- Abolishing inheritance tax on estates worth under £2m
- Removing VAT from energy bills
- Cutting fuel duty by 20p per litre
- Cutting corporation tax for small businesses
- Lifting the VAT threshold to £120,000
Unlike other parties, Reform UK’s tax and economy proposals have been subjected to very little independent costing and analysis.
There are many variables at play when it comes to taxation and it remains open for debate whether these policies are affordable, or if they could have unintended consequences. Some existing analysis, however, does indicate the high price tag of many of these pledges.
For example, Reform UK wants to hike the income tax personal allowance by 46 per cent. A recent HMRC analysis found that raising by 10 per cent would cost the Treasury £9.1bn this year, rising to £10.6bn in the 2025/26 financial year.
Currently, around 4 per cent of deaths result in inheritance tax being paid, but the party claims abolishing the tax on estates under £2m will reduce this to 2 per cent. Inheritance tax raised £7.5bn in revenue in 2023/24.
The cost of raising the base stamp duty threshold to £750,000 remains unclear. However, a temporary one-year increase of £500,000 brought in under Rishi Sunak when he was Chancellor reportedly cost the Treasury £6.4bn.
Reform UK also wants to reinstate the VAT refund scheme for tourists which was axed by Mr Sunak in 2021. It has been estimated this would cost around £2bn in lost tax receipts if brought back.
The exact cost of cutting VAT on energy bills depends on their exact rates, but it was estimated that removing the tax in 2022 would cost around £4.3bn a year. As for the cuts to fuel duty, forecasts suggest this could cost the Treasury an estimated £9.3bn in 2025.
Benefits and pensions
One of the big areas Reform UK wants to make savings to pay for their raft of tax cuts is by slashing the benefits bill by £15bn a year. They aim to do this by:
- Motivating people back to work by cutting income tax
- Reforming benefits to get 2 million people into work
- Withdrawing benefits after a job seeker receives two job offers
- Ensuring face-to-face assessments for PIP
- Integrating mental health with job centres
- Reviewing pension provisions and simplifying systems
- Overhauling practices to reduce benefit fraud
The party appears to want to use a heavier combination of carrot and stick to bring down the benefits bill but doesn’t provide any concrete details on how fast they’d reach this £15bn annual saving.
It is also unclear what financial outset, if any, will be needed to implement the changes and whether this has been factored into the headline calculation.
The Conservatives have also pledged to reduce spending on benefits by getting more people into work by reforming the Work Capability Assessment (WCA) and Personal Independence Payments (PIP).
They predict these measures will lead to £12bn a year in savings by 2029, but the Institute for Fiscal Studies has pointed out that over £11bn of this will likely have to come from reducing the number of people claiming PIP.
The IFS cast doubt over whether the Conservatives’ goal was achievable, arguing earlier this month that “delivering an additional £12 billion saving from this set of measures relative to what was forecast in the March Budget looks difficult in the extreme”.
With this in mind, it seems unlikely that Reform UK’s much more limited approach to cutting the benefits bill would also come across the same challenges, and struggle to ensure the £15bn in proposed savings by the end of the next parliament.
Government reform
One of the other most significant ways Reform UK want to make savings is by reducing “government waste” across a range of areas, which it suggests can deliver £91bn a year in savings. The party claims it would reach the figure by:
- Stopping Bank of England interest payments to commercial banks
- Saving £5 in ever £100 of government spending
- Cutting Brexit red tape to boost the economy
- Halving the foreign aid budget
To help lower interest rates and boost growth, central banks can make large-scale purchases of financial assets like corporate bonds and stocks to increase the flow of money in the economy. When they do this, they have to pay interest on whatever they buy.
One way around this is requiring banks to hold a proportion of their bonds in zero-interest reserves, which the central bank can then buy – something that many other countries do.
Research by the New Economics Foundation in 2023 suggested that the Government could save £55bn over the next five years if it limits the amount of money the Bank of England pays interest on to commercial banks. Reform UK, however, proposes that this could save between £30bn and £40bn a year.
However, Paul Johnson, director of the IFS, has warned that such changes are very unlikely to raise such big figures. He said: “It is a complex area but is unlikely to raise even half the £40bn annually that has been suggested, and only in the short term.”
The trickier area of Reform UK’s proposals is its plans to find 5 per cent of savings across the entire civil service which it claims will lead to £50bn a year of savings.
To achieve this, the party says it will require that “every manager across government must find savings without touching frontline services”. It is, however, very difficult to find public sector savings without impacting frontline services while many areas of government are already facing real-term cuts to their budgets of around 2.3 per cent a year.
Cutting the foreign aid budget would be much simpler, with Reform UK claiming this would release £6bn out of the £12.6bn currently being spent.
Health and social care
Reform UK has promised to spend £17bn a year on measures supporting the NHS, with improving efficiency and bringing in the private sector a big part of their plans. Their key pledges include:
- Ensuring frontline NHS staff pay no basic rate income tax for three years
- Writing off student fees for frontline staff after 10 years in the NHS
- Expanding independent healthcare capacity
- Introducing a 20 per cent tax relief on private healthcare and insurance
- Creating a NHS voucher scheme to allow patients to go private
- Cutting waste and boosting inefficiency in the NHS
- Cutting A&E waits with a ‘Pharmacy First, GP Second, A&E Last’ campaign
How exactly the £17bn a year of spending on the NHS will be allocated is not clear, but a large part of that sum will likely be spent on tax breaks for frontline staff and private healthcare.
The party’s election “contract” states that using the private sector will help by “relieving pressure on the NHS” and ensuring those who use it “enjoy faster, better care”.
Though there is no exact figure for the cost of the frontline staff tax cuts, it is implied that the cost of this will be offset by finding “efficiency” savings in the NHS. Out of the other main parties, Reform UK is the only one openly advocating for an expansion of the private healthcare sector.
Examples of these measures include opening operating theatres at weekends, scrapping diversity managers and reviewing all private finance contracts to cut costs.
These ideas aren’t so far-fetched – Labour has also set out plans whereby doctors would work on weekends, although they are making it voluntary for staff.
Do Reform UK’s pledge costings add up?
Reform UK has not provided detailed costings of the measures proposed in its “contract” with voters. Here are the headline figures for broader categories of policies which they have proposed:
Costs per year
- Economy and tax – £88bn a year
- NHS – £17bn a year
- Defence and veterans – £14bn a year
- Children and families – £8bn a year
- Education and families – £13bn a year
- Policing and justice – £5bn a year
- Agriculture and fisheries – £4bn a year
TOTAL SUGGESTED COSTS – £141bn
Savings per year
- Immigration reform – £5bn
- Energy subsidy cuts – £30bn
- Benefit cuts – £15bn
- Transport cuts – £5bn
- Civil service cuts – £50bn
- Scrapping interest on QE reserves – £35bn
- Foreign aid cuts – £6bn
TOTAL SUGGESTED SAVINGS – £146bn