A new Institute for Fiscal Studies report suggests that the Chancellor should avoid the temptation to announce tax cuts in the Budget on 6 March 2024. Although government borrowing figures have improved since the Office for Budget Responsibility’s forecasts at Autumn Statement 2023 giving the Chancellor potential headroom, ‘the economic case for tax cuts before the next Spending Review is completed is weak’, says the report.
At the same time, the IFS notes the ‘record-breaking increase in tax revenues as a share of national income over this parliament’, pointing out that, even after the recent NICs cuts, taxes in 2023/24 seem likely to be £66bn higher than they would have been, had they been held at 2018/19 levels in relation to national income. The main culprits, says the IFS, are the freezes in personal tax thresholds and the increase in the main rate of corporation tax.
At Autumn Statement, the Chancellor decided to fund £10bn of NICs cuts using ‘inflation-boosting’ tax receipts, rather than increasing public service spending. The IFS report is clear in its analysis of a potential repeat performance:
‘At the March Budget, it is conceivable that the Chancellor will get an opportunity to repeat a similar trick, if he uses the increase in forecast receipts that results from a bigger expected population to cut taxes, while ignoring the additional pressures that a bigger population places on public services. He should resist this temptation ... Until the government has provided more detail on its spending plans in a Spending Review, it should refrain from providing detail on tax cuts.’
On potential tax announcements, the report suggests that stamp taxes on both land and shares are ‘particularly damaging’ and could be considered as part of a strategy for growth-friendly tax cuts, rather than again looking to reduce tax on earned income. But, should there be fiscal space for substantial tax cuts, the Chancellor could instead decide to bring forward a package of genuine tax reforms to encourage growth (using the headroom to mitigate any impact on those who would lose out as a result) rather than making cuts to existing, unreformed taxes.
A new Institute for Fiscal Studies report suggests that the Chancellor should avoid the temptation to announce tax cuts in the Budget on 6 March 2024. Although government borrowing figures have improved since the Office for Budget Responsibility’s forecasts at Autumn Statement 2023 giving the Chancellor potential headroom, ‘the economic case for tax cuts before the next Spending Review is completed is weak’, says the report.
At the same time, the IFS notes the ‘record-breaking increase in tax revenues as a share of national income over this parliament’, pointing out that, even after the recent NICs cuts, taxes in 2023/24 seem likely to be £66bn higher than they would have been, had they been held at 2018/19 levels in relation to national income. The main culprits, says the IFS, are the freezes in personal tax thresholds and the increase in the main rate of corporation tax.
At Autumn Statement, the Chancellor decided to fund £10bn of NICs cuts using ‘inflation-boosting’ tax receipts, rather than increasing public service spending. The IFS report is clear in its analysis of a potential repeat performance:
‘At the March Budget, it is conceivable that the Chancellor will get an opportunity to repeat a similar trick, if he uses the increase in forecast receipts that results from a bigger expected population to cut taxes, while ignoring the additional pressures that a bigger population places on public services. He should resist this temptation ... Until the government has provided more detail on its spending plans in a Spending Review, it should refrain from providing detail on tax cuts.’
On potential tax announcements, the report suggests that stamp taxes on both land and shares are ‘particularly damaging’ and could be considered as part of a strategy for growth-friendly tax cuts, rather than again looking to reduce tax on earned income. But, should there be fiscal space for substantial tax cuts, the Chancellor could instead decide to bring forward a package of genuine tax reforms to encourage growth (using the headroom to mitigate any impact on those who would lose out as a result) rather than making cuts to existing, unreformed taxes.
