Chancellor George Osborne will likely need to hike taxes or cut spending if he is to meet his self-imposed target of balancing the budget by the end of the decade, the director of the Institute for Fiscal Studies (IFS) has warned.
Paul Johnson, who runs the influential think tank, said today that the chancellor has little flexibility if he is going to satisfy his so-called fiscal rule.
“He really is running out wriggle room,” Johnson said. “His chances of reaching the surplus are only just the right side of 50/50.”
Osborne said in the Budget that the government was on track to achieve a surplus of £10.4bn in 2019-2020. But economists economists were sceptical, saying the chancellor had ducked tough decisions on deficit reduction in favour of generous giveaways and back-loaded billions of pounds in fiscal tightening to the end of the parliament.
Johnson was equally critical, saying Osborne’s Budget was “largely moving numbers around” rather than “significant policy change”.
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Johnson was especially disparaging of the chancellor’s claim that the government’s decision to raise the tax-free personal allowance to £11,500 in April of next year 2017 would take people out of tax altogether.
“The disingenuousness of the rhetoric on the personal allowance continues,” Johnson said. “The chancellor boasted yesterday that the increase in it means another 1.3m of the lowest paid workers taken out of tax altogether. No, it does not mean that.
“Taken out of income tax, yes. But not taken out of direct taxes on income,” Johnson added. “It remains the case that national insurance contributions, which are just another tax on earnings, start to be paid once earnings rise above about £8,000. “Low paid workers are not taken out of tax by raising the personal allowance.”
But it was the think tank’s number-crunching on cuts to disability benefits that are likely to pose the most difficulties for the chancellor. According to the IFS, 370,000 people will lose out on £3,500 per year in disability benefits thanks to changes included in the Budget – a figure that the opposition immediately cited to call for a government U-turn.
“This cruel needless cut represents a new low and needs to be opposed by all MPs,” said shadow chancellor John McDonnell.