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Friday, March 18, 2016

Dodgy forecasts and sugar tax

When in opposition the Institute for Fiscal Studies is a friend, however once a party is in government they become a thorn in the side. So it has proved for George Osborne on his latest budget.

The Guardian reports that the Institute for Fiscal Studies has criticised George Osborne for a misleading budget pledge to help Britain’s lowest paid workers, and warned that the chancellor’s new soft drinks tax could backfire by raising sugar consumption.

They say that IFS has highlighted “disingenuousness” in the Chamcellor’s claims he was taking the lowest paid “out of tax”. It has also warned that Osborne had only a 50/50 chance of meeting his goal to put the public finances in surplus by the end of the decade, and attacked a decision to freeze fuel duty for a sixth year running.

Some of these are policy matters of course in which it is perfectly fine to have a different point of view. On economic growth though they have a particular expertise:

Osborne used a series of eye-catching tax changes for small businesses and workers in his budget to distract from a gloomier outlook for the economy after the government’s independent forecasters, the Office for Budget Responsibility (OBR), downgraded the prospects for productivity growth.

The IFS said this even bleaker outlook for productivity – or the UK’s economic efficiency – would hit wages and living standards and dent tax revenues for the exchequer.

That economic backdrop raised the prospect of deeper spending cuts to come, said the IFS head, Paul Johnson, presenting the thinktank’s now traditional postmortem of the budget. “In the longer term the public finances are kept on track only by adding yet another year of planned austerity on the spending side,” he said.

New bleaker forecasts for economic growth published alongside Osborne’s budget meant public finances were £56bn weaker than expected over the next five years, more than reversing the £27bn windfall the OBR predicted as recently as November.

Johnson said Osborne was “running out of wriggle room” and added: “His chances of having a surplus in 2019-20 are only just the right side of 50/50.”

It is possible that the IFS is scrutinising the government more effectively than the official opposition.
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