Taxes will go up, not down, despite ‘illusionist’ Sunak’s cuts, says think tank – inflation will ensure tax revenue grows
Taxes will continue to rise despite the cuts announced by Rishi Sunak in the spring statement, the Institute for Fiscal Studies (IFS) has warned.
Presenting the IFS'S analysis of the Chancellor's package of measures, director Paul Johnson said rising inflation would ensure tax revenues would go on increasing.
Overall,hesaidthesqueezeon living standards forecast by the Office for Budget Responsibility meant a median earner on £27,000 a year would be £360 worse off in the next financial year.
In his Commons statement, Mr Sunak said raising the threshold for national insuranceto£12,750represented"the largestsinglepersonaltaxcutin a decade".
However, Mr Johnson said thechancellorhadstillallowed taxestogoup,withtheeffectsof inflation and "fiscal drag" having "magically doubled" the scale of tax rises he announced last year.
He said a promised cut in the basic rate of income tax in 2024 would only give back half the "windfall" he is now expecting
fromhavingfrozenthepersonalallowanceandthehigherrate threshold.
"Mr Sunak has proved to be something of a fiscal illusionist," he said."in fact, taxes are set to rise to their highest level as a fraction of national income sinceclementattleewasprime minister."
Mr Johnson said that overall the measures set out by Mr Sunak – including council tax and energy bill rebates announced last year – amounted to a "relatively modest giveaway" of around £5 billion.
He said the Chancellor had still not done enough to protect poorer households from a "significant hit" to their living standards.
In particular, the failure to do more than a "default indexation" for benefits payments would leave many worse off.
"Whilebenefitlevelswillcatch up with inflation next year, that will be of little comfort to those budgeting week to week," he said.
"It is hard to understand the lack of action on this front."
Mr Johnson also strongly criticised Mr Sunak's decision to go ahead with a 1.25 percentage point rise in national insurance contributions while pencilling in income tax cuts.
"That again benefits those living off pensions and unearned incomesattheexpenseofworkers," he said.