The Institute for Fiscal Studies (IFS) recently published a report which revealed that more people are being ‘dragged into higher rates of tax’ as a result of tax thresholds failing to rise in line with the rate of inflation.
The report states that, in 2007, the year before the top income tax threshold of £150,000 was announced, there were 319,000 individuals with income above this level. The IFS suggested that, as a consequence of the threshold not having moved since it was first announced, there are now 428,000 taxpayers with income above this level.
The report also stated that other tax thresholds being frozen in nominal terms include: the inheritance tax (IHT) threshold, at £325,000; the VAT registration threshold at £85,000, which is set to remain at this level until 2022; and the £110,000 and £150,000 thresholds at which the annual limit on tax-privileged pension saving begins to be reduced. Additionally, the £100,000 threshold at which eligibility for Tax-Free Childcare is removed is not adjusted for inflation.
Paul Johnson, Director of the IFS, commented: ‘Recent governments have, rather stealthily, increased the tax rates on high earners. If the government thinks there is a case for more high-income people to pay more tax, it should be upfront about that view.’
In a new report, economic think tank the Institute for Fiscal Studies (IFS) has suggested that Chancellor Philip Hammond will be required to spend ‘billions more’ in order to end austerity.
The report suggested that spending increases promised by the Chancellor could be absorbed by a commitment to fund international aid, the UK’s defence sector and the NHS.
According to the IFS, some departments have already experienced ‘especially big cuts’ since 2010, meaning that it may prove to be difficult for the government to make any further savings.
Commenting on the report, Ben Zaranko, Research Economist at the IFS, said: ‘The Chancellor needs to decide what period the next Spending Review should cover, and what funding to make available to it.
‘The government has already committed to increase day-to-day NHS spending by £20 billion over the next five years. Even though the latest plans have overall day-to-day spending increasing over that time, these increases wouldn’t be enough even to cover the NHS commitment in full.
‘This suggests yet more years of austerity for many public services.’
The IFS also suggested that if the UK leaves the EU without a Brexit deal, the UK economy would struggle to grow, potentially leading to lower spending or higher taxes in the medium term.
A study carried out by economic think tank the National Institute for Economic and Social Research (NIESR) has suggested that the government’s Brexit deal will cost the UK £100 billion per year by 2030.
The study also indicated that Gross Domestic Product (GDP) will be 3.9% lower by 2030.
The NIESR predicts that, by the end of 2030, total trade between the UK and the EU will fall by 46%; the decline in GDP will cost each UK citizen £1,090; foreign direct investment will fall by 21%; and tax revenue will fall by between 1.5% and 2%.
Commenting on the study, Garry Young, Director of Macromodelling and Forecasting at the NIESR, said: ‘Leaving the EU will make it more costly for the UK to trade with a large market on our doorstep, and inevitably will have economic costs.’
Meanwhile, a separate study carried out by the London School of Economics, King’s College London and the Institute for Fiscal Studies (IFS) has suggested that the deal could leave the UK economy ‘as much as 5.5% smaller’ in a decade’s time.
Responding to the studies, a government spokesperson stated: ‘This deal will protect jobs and our economy, while respecting the result of the referendum.
‘It delivers an economic partnership with the EU closer than any other country enjoys, is good for business and is in our national interest.’
The Institute for Fiscal Studies (IFS) has suggested that Chancellor Philip Hammond ‘gambled’ with public finances in the 2018 Autumn Budget.
In its Budget analysis, the IFS stated that, whilst forecasts prepared for the Budget by the Office for Budget Responsibility (OBR) gave the Chancellor room for manoeuvre, public finance forecasts could ‘deteriorate significantly’ next year, leaving the government in a tricky position.
The Institute also warned that UK public services are ‘going to feel squeezed for some time to come’, and that cuts are ‘not about to be reversed’.
In regard to austerity, the IFS stated that we will ‘only really know’ when it is over when we have ‘firmer plans’.
Commenting on the Budget, Paul Johnson, Director of the IFS, said: ‘Mr Hammond will be thanking his lucky stars for the OBR. After all, who would have believed a Treasury forecast which just happened to allow more than £20 billion of additional spending on the NHS without either any tax increases or any effect on forecast borrowing?
‘And that really is the story of . . . [the] Budget. Lots of extra money for the NHS ‘paid for’ by better borrowing forecasts.’
The Institute for Fiscal Studies (IFS) has warned that the NHS will require tax rises in order to maintain the level of service it currently supplies.
In a recently published report, the IFS stated that, with an ‘ageing population’ and an increasing pay and drugs bill, individuals’ reliance on the health service will ‘only continue to grow’.
In order to sustain the NHS and fund increases in health spending, taxes would need to rise by between 1.6% and 2.6% – equivalent to between £1,200 and £2,000 per household, said the IFS.
It also revealed that funding increases of 4% per year will be required over the medium term to ‘secure modest improvements in NHS services’.
Commenting on the issue, Paul Johnson, Director of the IFS, said: ‘If we are to have a health and social care system which meets our needs and aspirations, we will have to pay a lot more for it over the next 15 years. This time we won’t be able to rely on cutting spending elsewhere – we will have to pay more in tax.
‘But it is a choice: higher taxes and a health and social care system which meets our expectations and improves over time, or taxes at current levels and a more constrained health service delivering less than we have become accustomed to.’
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.’