Reform and Tory tax cuts ‘would require deep cuts in public services and favour higher earners’

Martin Shipton

Tax cuts proposed by Reform UK and the Welsh Conservatives would require deep cuts in public services and would disproportionately benefit better off earners, according to an analysis of party manifestos undertaken by Cardiff University academics.

A report by the university’s Wales Governance Centre states: “The Welsh Conservatives propose lowering the basic rate [of income tax] by 1p in the pound, while Reform UK propose a 1p in the pound reduction across all three income tax bands.

“Both policies would be regressive. Under Reform UK plans, 90% of the gains would go to households in the top half of the income distribution, with 60% of the gains going to households in the top two deciles of income.

“The Welsh Conservatives propose lowering the basic rate by 1p in the pound. The latest estimates from the Welsh Government suggest this would cost £325 million in 2027-28. We project this cost would grow to £367m by 2030-31.

“Reform UK propose a 1p in the pound reduction across all three income tax bands. The manifesto promises to enact this tax cut by the end of the Senedd term; we estimate that this would cost £444m by 2030-31.

“At lower income levels, a significant share of income is not taxed due to the personal allowance, so the rate cuts apply to a lower share of income than for higher earners. Under the Conservatives’ proposals, the biggest beneficiaries relative to income would be those with a gross income of around £50,270, for whom the decrease in total tax liability as a share of income would be 0.75% (saving £377 annually).

“For Reform UK’s policy, the decrease in total tax liability as a share of income would peak at 1% for those with incomes above £125,140 (who would save £1,251 a year). Reform UK’s policy is regressive, with a typical household in the richest 10% of households gaining three times as much as a typical household in the 5th decile as a share of their income. 90% of the gains would go to households in the top half of the income distribution, with 60% going to households in the top two deciles of income.

“The Welsh Conservative policy is also broadly regressive, but to a lesser extent; the biggest relative gains would go to households in the 8th decile of income, with almost half of the gains going to households in the top two deciles of income.

“All parties propose reviews, reforms or specific reliefs for Non-Domestic Rates (NDR). NDR revenues have fallen by a fifth in real terms since 2019-20 and tax cuts would have an impact on resources available for public services.

“Reform UK and the Welsh Conservatives propose introducing a referendum requirement for council tax increases of 5% or more. Meanwhile, Plaid Cymru and Welsh Labour both promise to ‘make council tax fairer’. While carrying through the planned 2028 revaluation may fulfil this promise, the lack of further detail on what reforms both parties would implement is disappointing.

“We estimate total Welsh Conservative tax cuts could amount to approximately £705m by 2030-31, or 2.6% of day-to-day spending. On current spending projections, this would imply no real-terms growth in day-to-day spending over the next Senedd term.

“Reform UK’s explicit tax cuts could cost approximately £450m by 2030-31. … [The] fiscal outlook is highly uncertain and the underlying UK government spending plans and the economic forecasts will likely change substantially. But tax cuts on this scale would make deep cuts to some public services likely.

“The other parties will also hope UK government spending plans change. If they do not, then achieving manifesto commitments and avoiding cuts to public services will be difficult without some tax increases, be it through council tax, Non-Domestic Rates or using income tax powers. In this context, the explicit promise from Welsh Labour not to increase income tax rates – the most progressive tax lever available – risks tying their hands, reminiscent of UK Labour’s tax pledges at the 2024 general election.”

“Overall, the tax pledges contained in the manifestos do present a meaningful choice for voters and do tell us what each party would prioritise in the balance between taxation and spending on public services.”

Improvements

The report states: “All parties are promising improvements in, or expansion of, health services, including prioritising cutting waiting lists and times, more care in the community, mental health funding and prevention and early intervention.

“All parties bar Reform UK are proposing an expansion of childcare provision and funding, with reported estimated costs ranging from £100 million a year under Welsh Labour’s proposals to £400 million a year under Plaid Cymru’s plans.

“The manifestos contain other commitments, such as fare caps or expanding free bus travel (Green Party, Welsh Labour, Welsh Conservatives), reforming or increasing farm support (Welsh Conservatives, Welsh Liberal Democrats, Reform UK) and expanding free school meals (Plaid Cymru, Welsh Labour, Greens).

“Given the current outlook for Welsh Government funding and the parties’ proposals for the NHS, the scope for substantial additional spending commitments appears limited. If the UK government sticks to current spending plans they would require significant – and thus far unspoken – cuts to some public services or tax increases.

“Reform UK’s manifesto promises to deliver tax cuts ‘without cuts to frontline services’, proposing to reduce spending on ‘green subsidies’, ‘quangos’, and civil service pay. The vast majority of spending on decarbonisation and energy projects is in the capital budget, not day-to-day spending which the tax cut would reduce. The functions of arms-length bodies would still need to be funded after their abolition. And plans to ‘bring in’ these bodies into central government would have implications for the hugely ambitious plans to reduce central staff and running costs.

“With no party on course to secure a majority at the election, negotiations and agreements will be required to form the government and pass budgets. Alongside finding common ground on spending priorities, these negotiations will eventually have to turn to identifying areas to deprioritise too.”

NHS improvements

On promises to improve NHS services, the report states: “Generally little detail is given on how various improvements, guarantees and targets would be met and it is difficult to quantify the additional spending these policies would require, over and above ‘stand still’ spending pressures facing the NHS.

“These underlying cost and demand pressures are likely to be significant. The Welsh NHS will face higher demand from demographic change – the population aged 75 and over is set to increase by a further 7% by 2030 and medical advances mean many people are fortunately able to live for longer with complicated illnesses. Additionally, there are costs associated with adoption of new technologies; new drugs and other treatments which tend to increase costs over time. Pay deals will also likely continue to grow in real terms.

“Last year, the Health Foundation estimated that improving NHS performance in England would require annual real terms spending increases averaging 3.4% per year in the decade to 2034-35. Many of the underlying assumptions are also applicable to Wales, yet total funding for Welsh Government day-to-day spending is set to increase by only 0.7% per year in real terms for the next Senedd term.

“Given this constrained outlook for total public spending, delivering improved outcomes – alongside a plethora of commitments from the party manifestos – would require substantial productivity growth in the NHS each year, reversing the trends seen since the pandemic.

“Moreover, on current projections of the overall size of the Welsh budget, the increases in health spending that are likely needed would leave the next government having to find cuts to other areas of public services.

“Given the outlook for Welsh Government funding and the parties’ proposals for the NHS, the scope for significant additional spending commitments or tax cuts appears limited.

“As we’ve previously noted, however, the outlook is highly uncertain and is likely to change. Funding from the UK government may grow faster than current plans imply. Meanwhile, the economic outlook is perhaps more uncertain than at any time since the start of the pandemic, and a large spike in inflation this year would likely blow even the best-laid plans off course.

“If the UK government sticks to its current spending plans – or lets the real terms value of the block grant settlement to erode in real terms – growing NHS spending alongside the various manifesto commitments on childcare, education, transport, social care and taxation will require significant cuts to some public services or tax increases. The manifestos are largely silent on how these trade-offs would be managed.

“With no party on course to secure a majority at the election, negotiations and agreements will be required to form the government and pass budgets. Alongside finding common ground on the manifesto commitments, these negotiations will eventually have to turn to some more difficult choices.”