Millions of people face being hit with painful tax rises after the next general election to plug a £27 billion black hole, economists warned today.
The respected Institute for Fiscal Studies said Chancellor George Osborne’s plans are more skewed towards spending cuts than tax rises in his blueprint to deal with
Britain’s debt crisis. “So there is room to raise taxes and still keep to the announced tax/spending balance,” the institute’s director, Paul Johnson, was set to say today.
The Coalition has so far sought to tackle the debt mountain with cuts and tax rises based on an 80/20 ratio. However, the institute said that taking into account the Autumn Statement, including the £3.7 billion squeeze on benefits, the ratio from 2010/11 to 2017/18 is due to be 85/15. The economists also warned of more big cuts in public services including the police, local government, defence, environment and transport — if the Government continues to protect spending on the NHS, schools and overseas aid.
Without further tax rises or spending cuts, these areas will face cuts of 16 per cent in the three years to 2017/18, meaning their funding will be slashed by about a third once previous reductions are included.
“That begins to look close to inconceivable,” Mr Johnson added. “ Further welfare cuts and tax rises must be on the cards — £27 b illion-worth would be required to protect other spending in real terms entirely.”
The institute also questioned whether protecting health service spending, winter fuel payments and free bus passes and TV licences for wealthy pensioners will be maintained, given the scale of the cuts.
Mr Johnson said a million people will be dragged into the 40p higher rate of tax by 2015. Wealthy individuals will also be hit by a £1 billion-a-year raid on pensions which will reduce the amount they can save tax-free in pension schemes from £50,000 to £40,000.
The IFS accused the Government of making it harder for people to plan for retirement because of frequent changes to pensions.
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And constantly putting off fuel duty rises was “no way to make policy”, it said, stressing that yesterday’s axing of January’s 3p rise was being paid for by welfare cuts.
The economists also raised serious questions about the way Mr Osborne was being able to claim borrowing was going down, with the Office for Budget Responsibility including billions of predicted future departmental underspends in the figures.
