Economists find just 40pc of cuts already in place
WAGES will finally climb clear above the rate of inflation this year, a leading think tank said yesterday, yet it also warned that the government is merely 40 per cent of the way through planned spending cuts.
The Institute for Fiscal Studies said that most – 84 per cent – of the UK’s planned tax hikes should already be in place for the current fiscal year. Yet scheduled reductions in spending lag far behind, with only 40 per cent in place by 2013-14.
“There is still significant uncertainty about whether this plan can be delivered,” the IFS said in its so-called Green Budget, referring to the coalition’s plan to gradually reduce the state’s annual budget deficit.
The UK is still adding considerably to its £1.25 trillion debt pile, with the plans to close the deficit stretching beyond the next General Election.
The IFS added that there are “risks associated with our increasing reliance on a small group of very rich taxpayers,” yet noted that this is hard to quantify. The top one per cent of taxpayers – around 300,000 people – contributed 27.5 per cent of all revenue from income tax in 2011-12, it said. This number is up considerably from 1979, when it was just 11 per cent.
“Government is becoming increasingly reliant on the three main taxes – income tax, VAT and National Insurance contributions – which will account for two thirds of all revenue by 2018–19,” the report added.
Yet there was positive news for the wider economy, with Oxford Economics, which works with the IFS, forecasting 2.6 per cent GDP expansion this year – with less reliance on consumer spending.
And with inflation expected to stay under control, the squeeze on Britons’ finances should start to ease as wages rise at a higher rate than prices increase. “This will provide households with a welcome improvement in their spending power,” the IFS said.