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The IFS’s briefing on the Budget: Four things we learned

20 March 2014

20 March 2014

1. Two million more top-rate taxpayers 

The number of people paying tax at the 40p or 45p rates is to increase by two million under the coalition, going from 3.3 million in 2010-11 to 5.3 million in 2015-16. If the coalition had stuck with the tax policy they’d inherited, there would be 1.3 million fewer top-rate payers at the general election.

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2. Permanent giveaways, temporary taxes

At the Budget, George Osborne promised £4.9 billion of permanent giveaways, including another increase in the personal allowance to £10,500 from April 2015, an increase in ISA limits to £15,000, a reduction in the tax on savings income and reductions in alcohol duties. But there were only £0.7 billion worth of permanent tax increases to pay for them – the rest will be covered by bringing tax forward and cutting more.

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Measures such as taking money from tax avoiders and making them claim it back through the courts if they think they’ve been unfairly treated and changing tax on pensions drawdowns will raise money in the short-term, but are at best neutral overall. In his Budget red book Osborne gave numbers for what his reduced tax on pensions withdrawals will raise, and it reached £1.2 billion in 2018-19. He didn’t show it dropping like a stone after that, and eventually losing the government money.

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As the IFS’s Gemma Tetlow put it: ‘The Chancellor’s been getting into some bad habits’ with ‘temporary measures paying for permanent giveaways’.

3. Personal allowance increases cost as much as the VAT increase raised

Increases to the personal allowance came in for some criticism – the level has got so high that rises no longer help those on low incomes. But the IFS also revealed that the cost of increasing the personal allowance has almost swallowed up the money raised by lifting VAT to 20 per cent.

4. The government’s tax and benefits changes have stung the worse-off

The richest 10 per cent of people have been hit hard by the coalition’s tax changes, but so have the very poor. The poorest decile have lost almost 5 per cent of their income thanks to the government’s changes to taxes and benefits, while the government’s changes have hit the average person’s income by about 3 per cent.

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Show comments
  • Jackthesmilingblack

    If enough of those in private pension plans “take the money and run”, isn`t it possible that at least some private pension providers will experience liquidity problems? So will HMG underwrite this risk?

  • PT

    The most significant outcome from this budget will be on the housing market, as house prices enjoy even greater growth beyond 2015 as billions is poured into buy-to-let. Values were already getting a big shot in the arm thanks to Help to Buy, but I reckon the impact of all this pension money being plunged into property could be more significant, as your typical rental investment property is also the sort that subsidised first-time buyers will be chasing.

    Those that don’t use Help to Buy soon or don’t have parents who can pass on their main property wealth or a BTL rental to them are well f*cked though. A lifetime as rental fodder awaits!

    • HookesLaw

      Billions? So you are a mind reader? All this pension money? Pensions will have to mature first. All these people have the time energy and intellect to buy and sell and maintain property and to deal with tenants?

      How many other countries have had this legal requirement that we have had for years about annuities for pensions? Not many.

      What are their property markets like. How on earth have they survived?

      • Daniel Maris

        You know nothing Hooky. The most obvious way for a pensioner to increase their wealth in a rising housing market is to upgrade their own home with their pension money, not through letting.

        You are just banging the drum for our fresh air economy.

        • HookesLaw

          How does supposedly increasing their wealth increase their income. Thats what you save for – to give you income in retirement.
          The problem we have now is that people are not saving for retirement – worrying about what they may do with their pension pot is the least of our troubles. People not having a pot in the first place is the nations problem.

          • Alexsandr

            why bother? the government just steals it anyway. along with the pension providers. The whole pension industry is a scam.

      • Tom Tom

        That is because they don’t have such a big FIRE sector bilking pensions, most countries do not have annuities

        • HookesLaw

          Indeed most countries do not have annuities but manage OK, but we get idiots complaining when we abolish the legal requirement for us.

    • Daniel Maris

      And I am sure those effects will have been signalled by the Treasury and taken into account by Osborne when he makes his election calculations.

  • HookesLaw

    Sorry – isn’t this called ‘supply side’ reforms ?
    More top rate payers? Better not tell the Labour party.

  • ohforheavensake

    Something else the Chancellor didn’t mention was this-

  • Rockin Ron

    John, you have used the same graph for points 3 and 4. Please can you amend and stick the right graph for point 4.

    • HookesLaw

      The IFS point out that more people are paying higher rate but then choose to ignore that when claiming that the increase in personal allowances are being paid for by the VAT increase.
      In the next breath they are blaming the Chancellor for sleight of hand.

      • Makroon

        IMHO, the IFS under Johnson, is no longer a neutral ‘think tank’.
        Every bulletin they put out has a heavy and obvious agenda.
        I wonder what Balls has promised Johnson ?

  • James Strong

    What’s this about taking money off tax avoiders and making them claim it back through the courts?

    • Guest

      hahaha, another second hand car salesman!

    • HookesLaw

      Are you one of Jimmy Carr’s biggest fans?
      Or are you an even bigger @rse than I imagined.
      Gordon Brown sat back and did nothing whist a whole gang of sociopathic companies and individuals took the pi$$ out of the rest of us.

      • James Strong

        Good morning Hookey.
        I see, and so will everybody else, that you have offered no reasoned response and have had to go straight into insults.
        Address the issues.
        The proposal described in the artiicle is to take money that legally belongs to taxpayers and force them to go to court to get it back.
        Tell us, without resorting to abuse or silly and irrelevant questions, why that is a good thing.

      • Alexsandr

        they should change the law. avoidance is legal. if you don’t like people using certain measure to reduce their liability, them legislate.

    • Tom Tom

      Expropriation could prove expensive for the Treasury – especially since Non-Doms continue to make a mockery of such things

  • James Strong

    It is not a ‘giveaway’ if the Chancellor takes less money in tax.
    It’s only a ‘giveaway’ if you think the money belongs to the government in the first place. I do not think that.

    • HookesLaw

      Wow – you know I must have listened to over 50 budgets in my lifetime and I never heard that one before. Gosh you are an original thinker.

      • Tom Tom

        Sad…..50 budgets……and you are only 25 so that’s a lot of YouTube

      • James Strong

        Hookey, I’ll start with an insult now.
        You are a fool, a gross fool, if you think the point didn’t need making even though it has been made many times before.
        The word ‘giveaway’ is in bold type in the heading of the first section.
        It should not go unchallenged because when ideas go unchallenged those who have yet to make up their minds might be more likely to accept erroneous ideas without proper consideration.
        Or are you irritated that it was me who made the point this time?
        That’s just luck; I happened to be on-line shortly after the article went up.
        I’ll be away from mid-morning to late evening today.
        Will I find any rational arguments from you when I get back?
        Or will you still only be able to find silly abuse to put up?

    • Alexsandr

      this depends if you think everything belongs to the government and they give you some back, or if everything belongs to the people and the government takes some. I think the second should be true, so ‘giveaway’ is indeed inappropriate.

  • George_Arseborne

    So Ed Milliband was right. Give little with one hand and take more with the other. We knew after the head line grabbing the truth will come to roost. This was a con budget. Cheap Bingo and Bear for the Old and Poor of the other class to drawn their sorrows. What a shame?

    • Jackthesmilingblack

      Miliband, one”ucking l.
      Kids today, what would you do with um!

    • Whyshouldihavetoregister

      I don’t think illiterates should be allowed to post here.

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