In its response to the Chancellor’s Spring Statement, the Institute for Fiscal Studies (IFS) has suggested that tax increases amounting to £30 billion per year will be needed in order to cut the UK’s deficit.
To avoid spending falling as a fraction of national income beyond 2019/20, Chancellor Philip Hammond needs to find an extra £14 billion per year by 2022/23, the IFS said. It also stated that Mr Hammond would require an additional £18 billion of tax increases or spending cuts by the mid-2020s to eliminate the deficit.
The think tank said that ‘dismal’ growth in productivity and earnings is the ‘new normal’, alongside ‘dismal economic growth’.
In his Spring Statement speech, the Chancellor stated that the UK economy has reached a ‘turning point’ in the nation’s recovery from the financial crash of 2008.
The Office of Budget Responsibility (OBR) forecasts that the UK economy will grow at a faster pace than previously anticipated, with GDP growth reaching 1.5% in 2018.
However, in its report, the IFS said that the UK has had the ‘worst decade of growth since at least the last war’, and suggested that growth projections for the next few years are ‘subdued’.
Commenting on the matter, Paul Johnson, Director of the IFS, said: ‘The big specific challenge facing the Chancellor . . . remains over how to balance growing demands for spending increases against his desire to balance the books in the mid-2020s.’
Responding to the IFS, a Treasury spokesperson said: ‘Our balanced approach has reduced the deficit while also cutting taxes for over 30 million people and investing in our vital public services.’
Research carried out by the Institute for Fiscal Studies (IFS) has suggested that mothers working part-time jobs are receiving ‘long-term pay penalties’ as a direct result of the gender pay gap.
The report found that, when compared to fathers, mothers spend less time in paid work and more time working part-time. The IFS said that, as a result, mothers miss out on the earnings growth that typically comes with experience.
Individuals in regular, paid work often see their pay rise year on year as they gain experience: however, the IFS’s research showed that part-time workers, many of whom are mothers of young children, are missing out on these benefits.
The Institute stated that the effect of part-time work in reducing wage progression is ‘especially striking’.
By the time a first child reaches the age of 20, mothers earn, on average, 30% less per hour than fathers, the research also suggested.
Commenting on the issue, Monica Costa Dias, Associate Director at the IFS, said: ‘There are likely many reasons for persistent gaps in the wages of men and women, which research is still investigating, but the fact that working part-time has a long-term depressing effect is an important contributing factor.
‘It is remarkable that periods spent in part-time work lead to virtually no wage progression at all. It should be a priority for governments and others to understand the reasons for this. Addressing it would have the potential to narrow the gender wage gap significantly.’
In a new report, the Institute for Fiscal Studies (IFS) has stated that Chancellor Philip Hammond may be required to abandon his target for eliminating the deficit if he is to increase spending on public services.
The government has stated its intention to move public finances into surplus by the mid-2020’s, with the Treasury reaffirming its commitment to reducing the deficit ‘while also investing in our public services’.
According to the IFS, productivity growth is likely to be cut – meaning that the deficit could increase significantly, potentially rising to £36 billion by 2021/22.
In the report, the Institute said that it would be difficult to see how Mr Hammond could stick to his deficit reduction targets and also respond to the ‘growing demands for spending’.
Commenting on the matter, Mr Hammond recently said: ‘We’ve already moved the target for balancing the books out from 2020 to 2025, but continuing to drive down the deficit in a measured and sensible way over a period of years… has to be the right way to go.’
Carl Emmerson, Deputy Director of the IFS, stated: ‘Public sector workers, the NHS, the prison service, schools and working-age benefit recipients, among others, would like more money. Even if Mr Hammond does find some, unless it did represent a very big change of direction, it won’t mean ‘the end of austerity’.
‘Given all the current pressures and uncertainties – and the policy action that these might require – it is perhaps time to admit that a firm commitment to running a budget surplus from the mid-2020s onwards is no longer sensible.’
The Chancellor will deliver the Autumn Budget on Wednesday 22 November.
The Institute for Fiscal Studies (IFS) has warned that the government’s target to increase the number of apprentices risks being ‘poor value for money’.
In a report on the matter, the think tank suggested that increasing the number of apprenticeships could ‘come at the expense of quality’.
The IFS also warned that the target could diminish the apprenticeships ‘brand’, changing it into another term for training.
From 6 April 2017, the government will introduce its new Apprenticeship Levy, which will bring significant changes to the funding of apprenticeships for all employers.
The Levy forms part of the government’s target to encourage the creation of three million apprenticeships in England by 2020.
However, the IFS has warned that the focus on targets could ‘distort policy’ and ‘lead to the inefficient use of public money’.
The Institute recommended that the government move away from ‘arbitrary targets’, advocating a more gradual expansion in the number of apprenticeships and a ‘stronger focus on quality’.
Neil Amin-Smith, Research Economist at the IFS and co-author of the report, commented: ‘We desperately need an effective system for supporting training of young people in the UK.
‘But the new Apprenticeship Levy, and associated targets, risk repeating the mistakes of recent decades by encouraging employers and training providers to re-label current activity and seek subsidy rather than seek the best training.’
In a recently published report, the Institute for Fiscal Studies (IFS), the Chartered Institute of Taxation (CIOT) and the Institute for Government (IfG) have called for the government to change the way it makes tax and budget decisions.
The report comes following the 2016 publication of an open letter to Chancellor Philip Hammond, in which the three organisations called for significant changes to be made to the UK’s tax system in order to ‘simplify the making of tax policy’.
It outlines the need to publish ‘clear guiding principles and priorities’ for tax policy, and to improve consultation, ensuring that consultations occur before key decisions are made.
The institutes also called for the implementation of a more robust policy-making process, and for decisions to be challenged before they are incorporated into the Budget speech.
The report did, however, welcome the Chancellor’s announcement to move to a single Budget each year.
Paul Johnson, Director of the IFS, commented: ‘Tax policy is too important to leave to the Chancellor alone. We need a more open policy-making process as a route to a better tax system.
‘The lack of any explicit tax strategy allows policy to be made on the hoof and makes it harder to engage the public in a much needed rational debate about tax.’
Chancellor George Osborne’s plan to clear the UK’s deficit by 2019/20 is to be examined by the Institute for Fiscal Studies (IFS).
Mr Osborne has stated that economic forecasts suggest that his target will be achievable, despite his warning of a ‘dangerous cocktail of risks’.
However, in response to the Budget speech, Labour leader Jeremy Corbyn proclaimed that the Chancellor has ‘failed on the budget deficit’.
The IFS has predicted that the Chancellor has a 50% chance of succeeding in his plans to deliver a £10 billion surplus on public finances by 2020.
The Institute’s announcement of a review of Mr Osborne’s deficit plan comes after the Office for Budget Responsibility (OBR) revealed that it expects the UK economy to grow at a significantly slower rate over the next five years than previously anticipated.
Productivity growth has been revised downwards, with the OBR predicting that the economy will grow by a rate of 2.0% this year – down from a predicted figure of 2.4%.
The Institute for Fiscal Studies (IFS) has suggested that individuals face a complex and ever-changing range of tax treatments, which can make it difficult to select the most appropriate savings vehicle.
Additionally, the IFS claims that pensions are set to remain the most tax-efficient savings option, despite forthcoming changes to personal taxation.
This may be partly due to the fact that, under the pensions auto-enrolment scheme, employers must match any employee contributions. This has resulted in a potential boost of up to 60% to workers’ pension pots, the IFS reported.
The Institute compared saving via a pension to purchasing a house, paying into an ISA, and investing in buy-to-let property.
The report also considered the changes to dividend taxation and the introduction of the new Personal Savings Allowance (PSA), alongside any potential changes to pension taxation.
Furthermore, the IFS found that minor differences in charges can outweigh the effects of certain tax treatments.
Stuart Adam, co-author of the report, stated: ‘The last few years have seen radical changes announced to the taxation of savings. These will take millions of people’s savings out of the tax net altogether. Ideally, people might make savings decisions based on the underlying risks and returns of different assets. But taxes and charges can significantly change the relative attractiveness of different savings options. If people are unsure about how taxes and charges might change, their decisions become even harder’.