Written by: Keith Tully
Published: 26th February 2020
The newly installed chancellor of the exchequer Rishi Sunak faces a choice in his upcoming Budget between raising taxes, shelving the Treasury’s own fiscal rules or abandoning promises to end austerity.
That’s the view of the Institute for Fiscal Studies (IFS), which has said that the chancellor will need to raise billions of pounds more in taxes in the coming years if the government is to make good on its pre-election promises to increase pubic spending.
Alternatively, Mr Sunak could decide to redraw the fiscal rules within which the Treasury operates but IFS director Paul Johnson has warned against that approach and recommended raising taxes instead.
“We have already had 16 fiscal targets in a decade, and fiscal targets should not just be for Christmas,” Mr Johnson said.
“Mr Sunak should resist the temptation to announce another and instead recognise that more spending must require more tax.”
Among the tax-raising measures that the IFS highlights as potential options for the chancellor are the abolition of the entrepreneurs’ tax relief on capital gains, which the IFS estimates cost the Treasury £2.3 billion in 2017/18 while only benefitting around 5,000 people.
According to the think tank, another potential area of attention if taxes are to be raised might be council taxes, where it’s suggested that occupants of expensive properties could shoulder increases in the demands made of them by local authorities.
Other recommendations made by the IFS to government in advance of its Budget on March 11th include insisting that National Insurance Contributions be made by employers when they’re adding to their employees’ pension schemes.
“There are plenty of tax rises which would both raise revenue from better off individuals and improve the coherence of the tax system,” said Mr Johnson, whose think tank is among the most highly regarded in the country when it comes making assessments of the public finances.
“Top of the list should be the abolition of the misleadingly named entrepreneurs’ relief,” Mr Johnson said.
“Other candidates include reforming council tax to increase charges on more valuable properties, and ending the ludicrously generous tax treatment of capital gains at death and of inherited pension pots,” he added.
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