The Institute for Fiscal Studies (IFS) has issued a cautionary note regarding the impact of tax cuts announced in the upcoming budget. The IFS predicts that these cuts will be overshadowed by the substantial tax increases implemented during the current parliament.
According to the IFS, taxes are projected to increase by an unprecedented £66 billion during this parliamentary term, effectively neutralizing any potential tax reductions proposed in the budget. Anticipated measures such as income tax or national insurance reductions will not significantly alter the overall tax burden, which is set to reach its highest level since World War II.
The IFS attributes this rise in tax revenue to the freezing of tax thresholds for six years and the increase in corporation tax from 19% to 25%. The income tax threshold freeze is particularly concerning, as it creates "fiscal drag," causing more individuals to fall into higher tax brackets as their incomes increase.
Despite the inclusion of £20 billion in tax cuts in the chancellor's November autumn statement, these were offset by cuts in departmental spending. However, the IFS has criticized the lack of transparency in the government's expenditure plans, calling them "a work of fiction" due to incomplete details provided in spending reviews.
The Office for National Statistics' revelation of faster-than-expected population growth in the UK further complicates the government's fiscal calculations, affecting projections for real per-person government spending. This highlights the chancellor's challenge in balancing tax cuts with sustainable spending levels.