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IFS chief warns of UK tax rises ahead

27 June 2013   (0 Comments)
Posted by: Author: Hannah Kuchler
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Author: Hannah Kuchler

The British government is likely to raise taxes after the next election as it struggles to cut public spending further, the Institute of Fiscal Studies warned ahead of Wednesday’s spending review.

Paul Johnson, director of IFS, said there was a "good chance” that whoever wins the election will put up taxes rather than pursuing even more spending cuts.

If the austerity programme continues at the same rate until 2017-18, "a whole slew” of government spending would be one-third or more less than it was in 2010, he said.

"The scale of the cuts are really astonishing,” he told the BBC’s Today programme on Wednesday morning. "So, if I was a betting man I would think there would be some kind of tax rises after the election.”

George Osborne, chancellor, is due to unveil spending plans for 2015-16, the period after the next general election, at lunchtime on Wednesday. He will announce £11.5bn of election year cuts, while trying to breathe life into the government’s heavily criticised infrastructure programme.

In what would be the sixth year of cuts, Mr Osborne will outline plans to further reduce departmental spending, with local government, the Foreign Office, culture, justice and environment spending set to be hit hard.

But spending on health, schools and overseas aid is protected, and Mr Osborne may try to sweeten the cuts with more money for long-term capital projects on roads, rail, energy, housing and broadband.

The need for cuts in 2015-16 has been clear since the UK’s projected long-term growth rate was cut in 2011.

Labour claims the spending review is evidence the coalition government’s economic plan has failed. Ed Miliband, Labour leader, said if he were in government now, he would reverse a tax cut the government had given to higher earners to protect tax credits.

"What we see again today is the British people paying the price of this government’s failure,” he told Sky News on Wednesday morning. "They tell us the economy is healing but actually things are getting worse for ordinary families. What we actually need is a fairer plan to get growth moving, living standards rising and the deficit down.”

Chris Leslie, shadow financial secretary to the Treasury, said Labour would spend £10bn stimulating the economy, following advice given by the IMF. He said if the chancellor took the fund’s advice, he might not need to make the cuts in two years' time.

"There is still time to avoid the worst excesses of these cuts. Two years ago this chancellor was predicting that growth would be 2.5% and there wouldn’t be a deficit at all,” he told BBC news. "Now because he hasn’t dealt with that economic problem we’re ending up with a deficit that is £96bn. In two years you can do a lot. You can go very wrong or you can make the correct decisions.”


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