Reform UK pledged a “Great British tax cut” on Monday, funded by preventing the Bank of England from paying interest out to commercial banks.
Richard Tice, chair of Reform, announced plans to raise the personal allowance threshold to £20,000 from its current level of £12,570. This would cost around £40bn, Tice said, and remove 7m people from the tax system.
The former leader said the next government’s objective should be “reducing taxes because the truth is that British households, all of us, we are literally suffocating under the levels of high taxation that have increased under this Tory government over the last 14 years.”
Tice argued that this tax cut would help fuel an economic recovery by encouraging people back into work. “You cannot tax your way out of a crisis,” he said, “you grow your way out of it”.
The tax cut would be largely funded by preventing the Bank of England from paying interest on the deposits commercial banks hold at the Bank after quantitative easing.
Through quantitative easing, the Bank bought government bonds from financial institutions, funded by creating new commercial bank deposits on which it had to pay interest.
When interest rates were low, the yield the Bank received from government bonds exceeded the interest it had to pay on new commercial bank deposits. However, as interest rates have risen, the costs of the programme now comfortably exceeds the return from gilt yields.
The government is on the hook for the difference, which in 2024 is estimated to cost around £35bn. Tice described it as a “voluntary decision to rip off the taxpayer and enrich City institutions”.
“I just think that’s wrong,” he added. “We think the rate of interest should be zero”.
Many economists – including Gordon Brown and two former deputy Bank governors – have suggested that the Bank of England could reduce the amount of interest it pays out to banks. However, few think no interest should be paid.
As well as lifting the personal allowance, Reform pledged to lift the VAT threshold for small businesses from £90,000 to £150,000.
The proposals came at an event to launch Reform’s economic plans. Nigel Farage, Reform’s leader, said his party was close to a “tipping point” when it came to overtaking the Tories.
“My word of the day is momentum. We have got momentum. I have absolutely no doubt about it,” he said.
“We are ahead of the Conservatives in the north east, right now. We are ahead of the Conservatives in the north west, right now. We are ahead of the Conservatives in Yorkshire and the Humber, right now.”
Some polls put Reform only two percentage points behind the Conservatives.