Welfare cuts stole the limelight in the July Budget, but tax changes were more numerous and bigger, said Paul Johnson, director of the Institute for Fiscal Studies.
While there were £14bn of tax increases in the budget, against £8bn of tax cuts, “it is rather hard to pin down a coherent narrative around the changes,” Johnson said at the IFS summer Budget analysis.
Among the changes was a further increase in the income tax personal allowance from £10,600 to £10,800, with a goal to increase it to £12,500 by the end of the parliament, while the 40p tax threshold will climb to £50,000 in the same period.
Though the biggest, and perhaps most surprising given that we already have the lowest rate in the G20, is a further two per cent cut in corporation tax by 2020.
It will be surprising to many, with Osborne’s “lower tax society", that the Budget increased tax, with the increases roughly twice the size of the cuts in aggregate.
Not only this, but the tax system has not been simplified, with, for example, “a further reduction in the value of pension tax relief for those on high incomes through a complex, distortionary and difficult to justify” phasing down of the annual contribution limit to £10,000.
Inheritance tax is also set for “additional complexity” by the new family home allowance, an allowance which “will add yet further to the generous treatment of owner occupied housing,” Johnson said.
The director general of the Institute of Economic affairs earlier made similar comments: “The Budget was incredibly fiddly in a number of areas. One thing is for sure, if you’re an employee of the Office of Tax Simplification you now have a job for life, because with each statement from the chancellor the tax code gets longer and longer.”
So, while this was a big Budget in respects, “it was a deeply disappointing Budget for those of us who hoped the Chancellor might take the chance to improve, simplify and reform our creaking tax system".
This was not the Budget of a tax reforming Chancellor