Hunt's Tax and Spending Plans Would Cost U.K. $36 Billion

(Bloomberg) -- Jeremy Hunt’s tax and spending proposals could cost the U.K. exchequer around 28 billion pounds ($36 billion) a year, adding to long-term pressures on the public finances, according to the Institute for Fiscal Studies.

The foreign secretary, who is vying with Boris Johnson to become the next prime minister, has promised to increase defense spending to 2.5% of GDP and lower the tax rate on corporate profits to 12.5%, the same as in Ireland.

In an an analysis published Thursday, the IFS put the cost of hiking defense spending from the current 2% of GDP at 15 billion pounds by 2023-24, with the proposed corporation-tax cut from 19% costing 13 billion pounds in the short run.

The think tank dismissed suggestions that the loss of revenue could be made up by companies increasing their profits as a result of paying less tax.

With Britain facing spending pressures from an aging population and rising healthcare costs, Hunt’s proposals would “widen a gap in the public finances that will ultimately need to be filled through some combination of higher borrowing, tax increases or cuts to other areas of spending,” the IFS said.

Johnson, the front-runner to succeed Theresa May, is also offering tax cuts in his pitch to Conservative Party members. The former foreign secretary has pledged to raise the point at which people pay 40% income tax to 80,000 pounds, which the IFS says will cost an annual 20 billion pounds and mainly benefit the rich.

To contact the reporter on this story: Andrew Atkinson in London at a.atkinson@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint, Paul Gordon

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