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The IFS gives its Budget verdict

The Institute for Fiscal Studies’ briefing is always a good place
to pick up a few interesting nuggets of detail about the Budget — and this year’s is no exception. Here are five of the most striking
points from their presentation this morning:

1. Beyond the next election. In November, Osborne caused a stir by announcing that — in order to meet his fiscal target — further spending cuts would be needed after
2015. Annex A of the Budget gives some more detail on this, and the IFS has crunched the numbers even further. They calculate that
the fiscal consolidation from 2009-10 to 2016-17 will total £123 billion and that the overall ratio of spending cuts to tax rises will be 83:17.

But where will those extra spending cuts come from? If there are to be no further departmental cuts after the 2010 Spending Review, the IFS says we would need to cut welfare spending by £20
billion. But if — as Osborne’s Budget suggests — departmental cuts continue at the same rate as in this parliament, the welfare cuts would need to be more like £8–10
billion. Where to strike this balance will no doubt be the subject of much debate in the run up to the next election.

2. The 50p tax: uncertainty still reigns. George Osborne may have answered one question about the 50p tax rate — when it will be scrapped — but several remain
unanswered, despite the detailed report on it by HMRC which accompanied the Budget. The big one, of course, is: ‘How
much will scrapping it cost?’ HMRC’s estimate is just £100 million. The IFS says their analysis is ‘probably the best they could do with information available’ and
produces similar results to other studies including the IFS’s own, but warns that — as HMRC acknowledge — there is still huge uncertainty.

3. Pensioners do alright. The big surprise in the Budget — as the one main feature not heavily trailed beforehand — was the ‘Granny Tax’ that has fuelled
this morning’s headlines. But the IFS suggest that this is not the ‘stealth attack’ on pensioners that some have made it out to be:

‘Despite this morning’s headlines, this looks like a relatively modest tax increase on a group hitherto well sheltered from tax and benefit changes. From this Budget we calculate
that pensioners will lose on average about one quarter of one per cent of their income in 2014.’

4. An extra 1.3 million higher-rate taxpayers. In order to limit the cost of raising the personal allowance to £9,205, the 40 per cent income tax threshold
will be lowered, moving an extra 325,000 into the higher rate. The IFS predict that this, coupled with ‘fiscal drag more generally’ means that the number of higher-rate taxpayers will
rise from 3.7 million in 2011 to 5 million in 2014. Those people will still be better off thanks to the higher personal allowance, but, as Pete said yesterday, some Tories will surely baulk at the idea of one in six taxpayers paying the higher rate.

5. ‘Fiscally neutral’? Maybe not. There’s a chance Osborne’s claims to have produced a fiscally neutral Budget may prove not to be true. What with the large
uncertainty over the costs and benefits of some of his policies — particularly the 50p tax, but also the caps on tax relief and the new stamp duty band — it could turn into a tax
giveaway, with the implications for higher borrowing that would bring.

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