Experts predict £6bn tax increase
Filed under: Tax
The Institute for Fiscal Studies think tank said that, despite the £11.5 billion worth of reductions for 2015/16 set out on Wednesday by Mr Osborne, savings of a similar magnitude had already been pencilled in for the following two years.
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IFS director Paul Johnson said there would now have to be a "serious debate" on whether fiscal retrenchment on such a scale could be achieved through more spending cuts alone or whether taxes would have to rise as well.
Earlier Mr Osborne refused to rule out the prospect of tax rises after the election, although he insisted that he remained committed to rebuilding the public finances by cutting the "root cost" of government.
Speaking at an IFS briefing on the spending review, Mr Johnson said the Government was already on course to shed one million public jobs by 2017-18 compared with when they came to power in 2010. While ministers had previously said that 80% of the savings they needed to make would come from spending cuts and from 20% tax cuts, the balance had now shifted to a 85/15 split.
He said: "At almost any other moment in the past 60 years, announcements of spending cuts of this scale would have created a storm. At some point we are going to have to have a serious debate about whether all of the rest of the fiscal consolidation is really going to happen through spending cuts alone. Returning to an 80/20 split for the consolidation as a whole would mean a £6 billion tax increase in the next parliament."
Interviewed on the BBC Radio 4 Today programme, Mr Osborne indicated that he still favoured a 80/20 split between spending cuts and tax rises.
He said: "People can judge me by my record. Whilst of course some taxes went up, actually the vast bulk of this fiscal consolidation - 80% of it - has come from paring back spending and we are still on track to deliver that split."
Mr Johnson, however, warned that the Chancellor was in danger of undermining a key element of the tax system by extending the freeze on the council tax into a sixth year - increasing the prospect that it could just be left to wither away.
He said: "However much council tax payers may welcome it, this is not a sensible reform. And it is not one that is being properly announced or debated. We need an effective property tax and we need a robust source of funding for local government. This continuing policy looks set to undermine both."