Tuesday, October 17, 2023
No room for tax cuts
Infamously, Liz Truss went ahead and wrecked the UK economy despite expert advice which warned her of the consequences of her actions.
It is unlikely that she and her faction will take much notice of the latest warning from the Institute for Fiscal Studies therefore, who argue that the government has no room for unfunded pre-election tax cuts despite having pushed through a “colossal” £52bn a year stealth raid on household incomes on Rishi Sunak’s watch.
Fortunately, Truss is no longer in charge, but her group remains influential and continues to exert pressure on UK Tory Ministers, many of whom sympathise with her aim of cutting taxes in the belief that such an act will stimulate growth.
The Guardian reports that Britain’s foremost economics thinktank have said that the dire state of the public finances means that attention-grabbing tax cuts risk stoking inflation, leading to higher Bank of England interest rates and a lengthy recession:
On Sunak’s watch, tax revenues as a share of the British economy are on track to climb to the highest sustained levels since the second world war – in part driven by a six-year freeze on income tax thresholds, a policy first introduced during his time as Boris Johnson’s chancellor.
Known as “fiscal drag” and expanded by Jeremy Hunt last year, the IFS said the policy would raise a “colossal” £52bn a year for the exchequer by 2027-28. Suggesting the government may find its plans tough to maintain under heavy political fire, it said the freeze meant as many as 6.5 million more people would pay tax on their income compared with 2020, while 4.5 million more people would be dragged into higher income tax thresholds.
In its annual “green budget” health check before Hunt’s autumn statement next month, the IFS warned the UK remained stuck between weak economic growth on the one hand and the risk of persistently high inflation on the other.
A decision by the chancellor to relax the purse strings “might give a short-term economic sugar rush, but could prove unsustainable and ultimately mean a protracted recession as interest rates rise even further to bring inflation back under control”, it said.
Paul Johnson, the director of the IFS, said Britain was “in a horrible fiscal bind”, leaving Hunt or an incoming Labour government with little room to radically change tax and spending plans. “The price of our high levels of indebtedness, failure to stimulate growth and high borrowing costs is likely to be a protracted period of high taxes and tight spending.”
Actually, the most revealing part of Johnson's statement is that the so-called low-tax Tories have actually increased our tax burden and added to the cost-of-living burden faced by families across the UK. Look to what they do, not what they say.
Fortunately, Truss is no longer in charge, but her group remains influential and continues to exert pressure on UK Tory Ministers, many of whom sympathise with her aim of cutting taxes in the belief that such an act will stimulate growth.
The Guardian reports that Britain’s foremost economics thinktank have said that the dire state of the public finances means that attention-grabbing tax cuts risk stoking inflation, leading to higher Bank of England interest rates and a lengthy recession:
On Sunak’s watch, tax revenues as a share of the British economy are on track to climb to the highest sustained levels since the second world war – in part driven by a six-year freeze on income tax thresholds, a policy first introduced during his time as Boris Johnson’s chancellor.
Known as “fiscal drag” and expanded by Jeremy Hunt last year, the IFS said the policy would raise a “colossal” £52bn a year for the exchequer by 2027-28. Suggesting the government may find its plans tough to maintain under heavy political fire, it said the freeze meant as many as 6.5 million more people would pay tax on their income compared with 2020, while 4.5 million more people would be dragged into higher income tax thresholds.
In its annual “green budget” health check before Hunt’s autumn statement next month, the IFS warned the UK remained stuck between weak economic growth on the one hand and the risk of persistently high inflation on the other.
A decision by the chancellor to relax the purse strings “might give a short-term economic sugar rush, but could prove unsustainable and ultimately mean a protracted recession as interest rates rise even further to bring inflation back under control”, it said.
Paul Johnson, the director of the IFS, said Britain was “in a horrible fiscal bind”, leaving Hunt or an incoming Labour government with little room to radically change tax and spending plans. “The price of our high levels of indebtedness, failure to stimulate growth and high borrowing costs is likely to be a protracted period of high taxes and tight spending.”
Actually, the most revealing part of Johnson's statement is that the so-called low-tax Tories have actually increased our tax burden and added to the cost-of-living burden faced by families across the UK. Look to what they do, not what they say.
