IFS warns on new 2p tax hike threat

Already under fire for not lashing down his Help to Buy mortgage guarantee scheme, George Osborne is now taking heavy shelling from the Institute for Fiscal Studies (IFS).

The IFS predicts up to £9bn of tax rises may hit the public, equivalent to a 2p rise at basic rate. It's either that or borrow more, says the IFS.

Grim outlook

"The picture for future years has deteriorated significantly," says IFS director Paul Johnson. "Just as tax receipts have under-performed in the last few months forecasts for receipts have been downgraded each year through to 2017-18."

The scrapping of the fuel duty escalator rise will cost the country around £5bn and the increase in the personal tax allowance also much pressure, Johnson says. Any tax hikes would likely take place from an incoming government in 2015, which would likely struggle to cope with a widening public finance gap. So more cuts - or tax hikes.

"At least 50% spending cuts"

Another voice has added to the worry. "You wouldn't know it from the headline figures, but local government, along with some other unprotected and unloved public services, looks likely to face at least 50% spending cuts between 2011-12 and 2017-2018,"said Tony Travers, a research director at the LSE in an interview with Public Finance Magazine.

Johnson goes on to add that Osborne's budget looks "odd" in terms of clamping down on spending. The Chancellor's handiwork, says the IFS director, is driven by increased National Insurance revenues from public sector employers; the effect of public spending cuts pencilled in for the next parliament, he adds, will be more severe than expected.

Messing with the numbers

"Add to that the fact that we are promised more capital spending, more spending on social care, and a more generous childcare subsidy, within an overall spending envelope that has not been expanded and the outlook for all other unprotected spending looks grim indeed."

To add insult to injury, the IFS also poured scorn on the Chancellor for putting pressure on civil servants to manipulate borrowing figures - delaying payments to the World Bank, for example - for political advantage. There's also concern that the poor state of the public finances could see a further credit rating downgrade.

Budget 2013: Winners and Losers

Budget 2013: Winners and Losers