IFS blasts political parties for avoiding “painful choices” on tax and spending

By admin Jun25,2024

Think tank the Institute for Fiscal Studies has accused both Labour and the Conservatives of failing to acknowledge that either taxes need to raised or public services will continue to stagnate.

The think tank said the UK is currently in a situation with a spiralling national debt, as debt interest is rising by £50 billion a year, while there is a growing welfare budget to deal with.

Other challenges are a defence budget which likely needs to grow, the impact of demographic change and the need to transition to net zero.

This is combined with low growth, the after-effects of the pandemic, as well as the energy crisis.

The think tank reckoned neither party seems willing to face up to the economic challenges facing the country – both adopting what it dubbed “a conspiracy of silence”.’

Paul Johnson, director, Institute for Fiscal Studies, said: “These raw facts are largely ignored by the two main parties in their manifestos.

“That huge decisions over the size and shape of the state will need to be taken, that those decisions will, in all likelihood, mean either higher taxes or worse public services, you would not guess from reading their prospectuses or listening to their promises.

“They have singularly failed even to acknowledge some of the most important issues and choices to have faced us for a very long time. As the population ages these choices will become harder, not easier. We cannot wish them away.”

This philosophy of failing to acknowledge what’s needed is reflected in tax and spending, the think tank added, as the only way the parties want to raise taxes is by three years of freezes to personal tax allowances and thresholds, and by “cracking down” on tax evasion and avoidance, which they said would raise £5 billion.

On Labour, the IFS was critical of its promise for “no increases on working people” on taxes. Johnson said “these tax locks are a mistake” and they will “constrain policy” for years to come. Meanwhile he dismissed Labour’s spending commitments as “trivial”, which offer nothing concrete on welfare.

With the Conservatives Johnson said most of its manifesto appears to be focused on cutting taxes, regulations and red tape, meaning “they are largely about getting the government out of the way”, rather than actually taking direct action.

Liberal Democrats

Johnson noted that the Liberal Democrats have made some bigger tax and spend policies than Labour and the Conservatives, suggesting the party isn’t sticking its head in the sand like the big two.

The Lib Dems want to raise taxes by £27 billion to fund a £4 billion boost to the working-age benefit system and a £23 billion increase to day-to-day public service spending. They would increase investment spending, to the tune of £20 billion a year.

They would raise this cash by reducing avoidance, increasing capital gains tax, taxing banks, taxing flying, and taxing energy companies and technology giants, though the IFS reckoned these measures wouldn’t bring in enough money.

Johnson added: “There are some good ideas here, and some less good ones. But these would not be ‘victimless’ taxes. Tax is near a record high as a fraction of national income.

“But direct taxes on average earners are historically low. We raise far more from corporation tax and those on high incomes than we have ever done before.

“Not all large tax rises will only and always hit just these unworthy victims, and ones that do can also risk economic damage.”

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