The Reform UK leader has abandoned tax cuts that did not add up
NIGEL FARAGE has made a career of defying the political establishment. There is one force with which he isn’t prepared to meddle: the bond markets. In an address in the City of London on November 3rd, Mr Farage, the leader of Reform UK, announced that his populist right-wing party’s previous commitments to cut taxes were unfeasible, given Britain’s parlous public finances. If he means what he says, the net effect is probably to increase Mr Farage’s chances of making it to Downing Street, at least a little, and reduce the likelihood of him provoking an economic crisis if he gets there.
The commitments in Reform’s manifesto during the 2024 election were eye-watering. Mr Farage promised to raise the threshold on which income tax is paid from £12,570 ($16,666) to £20,000, abolish inheritance tax for estates worth less than £2m, and cut corporation tax from 25% to 15%. The party said its plans would be fully offset by slicing 5% off every government department’s budget.
The Economist ran the rule over these promises in May. What we found wasn’t pretty. Based on standard costings from HMRC, the tax-collecting agency, it was clear that Reform had made incredibly optimistic assumptions. More realistic accounting put the annual costs of its policies in the region of £200bn, and the savings at £100bn. The gap between the two would exceed that of Liz Truss’s disastrous 2022 budget, and strain the gilt market to its limits. Our criticism did not go down well. “You backed the war in Iraq. You are the ultimate contrarian indicator. Thank you for your endorsement!” wrote Zia Yusuf, Mr Farage’s right-hand man, among other complaints on X, an online platform.
In his speech, Mr Farage declared that those tax plans had merely been an aspiration and his first priority would be retaining the confidence of Britain’s lenders. “We are being mature, we are being sensible, and we are not over-promising,” he told an audience of journalists and city lobbyists. He insisted his party would cut welfare and the civil service. “We can’t have massive tax cuts until the markets can see we’ve at least got these things in hand.” He set out a couple of “relatively modest” tax reforms, including reversing recently-imposed inheritance-tax levies on farms and family businesses, which together would cost around £500m a year.
Mr Farage is right to worry about fiscal credibility. Britain has the highest debt-servicing costs as a share of GDP in the G7; the yield on ten-year bonds is 4.4%. The cost of servicing Britain’s debt has more than doubled since the pandemic to 3.7% of GDP, a level last sustained in the late 1980s. Those facts are central to Labour’s troubles. In a speech on November 4th, Rachel Reeves, the chancellor, hinted that broad-based tax rises would be announced in the budget later this month, saying that “each of us must do our bit.” That would violate Labour’s core manifesto commitment, but ministers seem to have decided there is no alternative.
Mr Farage is not tying his hands. But for all his assurances that he understands the constraints imposed by bond markets, he is yet to make any hard commitments on tax and spending. While he would not commit to keeping the triple lock, an expensive escalator for state pensions which has a totemic status in British politics, scrapping it altogether would be another matter. (Not least because Reform’s strongest support is among older people who live in Britain’s poorest regions.) Many of his ideas for boosting Britain’s growth rate, such as what he regards as an excessive focus by financial regulators on diversity, are small-fry distractions.
Still, do not mistake this for the rebirth of a fiscal conservative. It is instead an act of political calculation. Mr Farage has casually tossed aside manifestos before (notably a promise by UKIP, his former party, to repaint trains in traditional liveries). His latest move reflects his personal control over his movement. It also reveals an idiosyncratic approach to low trust in politicians: a leader cannot be accused of breaking promises, like those in Mr Farage’s manifesto, if they are openly regarded as a joke.
Reform’s 2024 manifesto was profligate because it was a scrappy insurgent party, with no hope of achieving power. Now Mr Farage is the front-runner to be Britain’s next prime minister. With a fragile lead in the polls to defend, possibly for years until the next election, caution wins the day. If Mr Farage sticks to his new position, Labour will find it harder to use one of its strongest attack lines, which was that Reform’s plans would initiate a bond-market panic. It could mark the start of an evolution like those seen in France and Italy, where the populist right has moderated as it has come closer to power. That is a big “if”, and a decisive one for Britain.
