UK Finance Minister Rishi Sunak’s tax-raising Budget came under closer scrutiny on Thursday, with an influential thinktank questioning whether he could raise the sums forecast yesterday.
There was also criticism of plans to introduce a “cliff-edge” halt of higher universal credit payments in September when other tax reliefs and incentives were being phased out gradually.
In its budget analysis, the IFS said Sunak had been “hemmed” in by an election manifesto pledge to not raise income or sales taxes, describing him as both “scrooge” and “santa” in delivering “a tale of two Budgets” as he splashed out £65bn in Covid pandemic support measures while grabbing £50bn in corporation and personal taxes.
“Mr Sunak made much of his desire to be honest and to level with the British people. The fact that he felt constrained to raise taxes by hitting companies and through freezing allowances, rather than through more explicit rises in people’s taxes, suggests there are limits to how far he wants to level with us as he attempts to raise the overall tax burden to its highest sustained level in history,” said IFS director Paul Johnson.
“Make no mistake, this proposed increase in the main rate of corporation tax is a big reversal of decades of policy direction and a significant risk. For all the rhetoric about it leaving the headline rate here below that in other G7 countries, our effective tax rate will be relatively high.”
Johnson said the decision not to end the £20-a-week uplift in universal credit in phases was “remarkable” compared with the approach to the furlough scheme, stamp duty holiday, and cuts in VAT and business rates support, and warned the incomes of some of the poorest families “will fall by over £80 between one month and the next”.
He warned that Sunak would face pressure to keep the increase, which would then add £6bn a year to the government’s bill.
“Whatever the case for cutting generosity into the longer term, if you’re going to do so the case for doing it gradually rather than all at once looks unanswerable,” Johnson said.
Sunak’s plans to raise £17bn from a rise in corporation tax to 25% from 19%, described as a “screeching u-turn” of Tory economic policy, were also questioned.
“Whether that rise in the corporation tax will actually be delivered without additional concessions we will wait and see. I reckon 50-50 at best. Even if it does … raise £17bn in 2025-26, it will raise less over the long run,” Johnson said.
“Then there are the chances of delivering what look like £17bn of spending cuts relative to March 2020 plans which, broadly speaking, is what Mr Sunak says he is planning.”
“I may be proved wrong, but I’d offer 10 to 1 against that happening.”
