Sunak's spending plans, tax cuts undeliverable, says IFS
Thinktank questions plausibility of plans to balance budget post-pandemic
UK Finance Minister Rishi Sunak’s plans to bring the budget into surplus through tax increases and spending cuts are undeliverable, an influential thinktank said on Thursday.
The Institute for Fiscal Studies said Sunak's intention to maintain pre-Covid plans to cut public spending by £17bn, while still dealing with the impact of the pandemic were implausible.
There was also criticism of plans to introduce a “cliff-edge” halt of higher universal credit payments in October when other tax reliefs and incentives were being phased out gradually.
In its budget analysis, the IFS said Sunak had been “hemmed” in by an election manifesto pledge to not raise income or sales taxes, describing him as both “scrooge” and “santa” in delivering “a tale of two Budgets” as he splashed out £65bn in Covid pandemic support measures while grabbing £50bn in corporation and personal taxes.
"Mr Sunak made much of his desire to be honest and to level with the British people. The fact that he felt constrained to raise taxes by hitting companies and through freezing allowances, rather than through more explicit rises in people’s taxes, suggests there are limits to how far he wants to level with us as he attempts to raise the overall tax burden to its highest sustained level in history," said IFS director Paul Johnson.
“Make no mistake, this proposed increase in the main rate of corporation tax is a big reversal of decades of policy direction and a significant risk. For all the rhetoric about it leaving the headline rate here below that in other G7 countries, our effective tax rate will be relatively high.”
'REMARKABLE' DECISION ON UNIVERSAL CREDIT
Johnson said the decision not to end the £20-a-week uplift in universal credit in phases was “remarkable” compared with the approach to the furlough scheme, stamp duty holiday, and cuts in VAT and business rates support, and warned the incomes of some of the poorest families “will fall by over £80 between one month and the next”.
“Whatever the case for cutting generosity into the longer term, if you’re going to do so the case for doing it gradually rather than all at once looks unanswerable,” Johnson said.
Sunak’s plans to raise £17bn from a rise in corporation tax to 25% from 19%, described as a “screeching u-turn” of Tory economic policy, were also questioned.
“Whether that rise in the corporation tax will actually be delivered without additional concessions we will wait and see. I reckon 50-50 at best. Even if it does … raise £17bn in 2025-26, it will raise less over the long run,” Johnson said.
“Then there are the chances of delivering what look like £17bn of spending cuts relative to March 2020 plans which, broadly speaking, is what Mr Sunak says he is planning.”
“I may be proved wrong, but I’d offer 10 to 1 against that happening.”
"Frankly that doesn't strike me as being very plausible, the idea that we will need to be spending less on education, health, social care, local government after the pandemic than we though we were going to beforehand just doesn't look very likely ... those numbers don't look like they are going to hold."
Johnson attacked Sunak's continuations of "two perennial absurdities".
"This is the 11th year in a row that a government supposedly committed to net zero greenhouse gas emissions has cut the tax on burning petrol and diesel," he said.
"And the freeze in the lifetime allowance means that the goalposts have been moved for pension savings yet again – something which has happened at least every other year for the last 12 years. How savers are supposed to make long term plans for their retirement in such circumstances is beyond me."