There even more dramatic spending cuts ahead, the Institute for Fiscal Studies has warned, on the back of Chancellor George Osborne’s decision to extend the fiscal consolidation through to 2018-19 say Harris & Co accountants Northampton
The end of 2014 will take the UK only up to the 40% mark on planned spending cuts, the think tank says, adding that even with £12bn a year in additional cuts to social security spending, there will be cuts of more than 30% in ‘unprotected public service budgets’ since 2010.
The stark news was revealed in the IFS’s Green Budget, published today in advance of the Budget scheduled for March 19.
The IFS has issued caution around policy issues and their risk to tax income for the government, saying that if fuel duties do not rise each year with inflation – as suggested by government’s forecasts – an extra £4.2bn would need to be found by 2018-19.
And further risks are raised around quantifying the risks associated with increasing reliance on a small group of very rich taxpayers, the IFS says in its report.
‘The share of income tax paid by the top 1% of taxpayers rose from 11% in 1979 to 27.5% in 2011-12. The income tax alone paid by these 300,000 very high income individuals’ accounts for 7.5% of all tax revenues. These individuals will of course also pay a large fraction of VAT and capital taxes,’ the IFS says.
The organisation also takes issue with government’s projections of growth from underlying revenues in capital taxes – which it says are ‘notoriously difficult’ to forecast.
‘Government is becoming increasingly reliant on three main taxes - income tax, VAT and national insurance contributions (NICs) - which will account for two thirds of all revenue by 2018-19,’ it says.
IFS director Paul Johnson said: ‘Returning growth, and forecasts suggesting we should be running a Budget surplus by 2018-19, should not lull us into a false sense that all is now well with public finances. The outstanding debt will still be very large and the scale of additional spending cuts required to hit that… remains challenging.’