Coalition ‘missed chance’ on tax

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Published: Friday 13th March 2015 by The News Editor

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Tax changes introduced under the coalition Government have increased the total amount paid by £16.4 billion a year – the equivalent of around £255 for every person in the UK – according to a new report.

The Institute for Fiscal Studies found that by 2015/16, the coalition had introduced tax rises totalling £64.3 billion – including a £14 billion hike in VAT and £5.2 billion increase in National Insurance contributions – offset by reductions worth £48 billion – including £8 billion from raising the personal threshold for income tax, £5.9 billion in cuts to corporation tax and £3.9 billion from real-terms reductions in fuel duties.

But the economic thinktank said that the coalition’s changes represented a “missed opportunity to improve the tax system”, because they had been introduced in a piecemeal way with little attempt to address “fundamental structural deficiencies”.

Several of the changes have exacerbated “unwelcome distortions” in the system, said the IFS. It was difficult to find a “good economic reason” for lifting ever-more lower-paid workers out of income tax while leaving National Insurance thresholds largely untouched, and it was an “absurdity” that the two taxes had not been integrated.

The IFS highlighted the “problematic” failure to uprate tax thresholds in line with inflation, and warned of a “rapid” increase in workers paying higher rates of income tax as the economy improves. Unless the phenomenon known as “fiscal drag” is dealt with, the number of families losing some or all of their child benefit will double within a decade, the report predicted.

The report also warned that council tax had been allowed to get “ever more out of date”, with bands in England and Scotland based on property prices in 1991. And it said that areas such as fuel duties and business rates had “seen a stream of ad hoc, often temporary, announcements overtaking each other without a clear statement of principles or long-run intentions”.

Authors Stuart Adam and Barra Roantree said: “There is a better way to make tax policy. The corporate tax road map was a good start, setting out a direction of travel and providing an element of predictability. The next government would be well advised to apply this approach to more elements of the tax system, and indeed to the tax system as a whole.

“That would help taxpayers to plan, provide a benchmark for assessing the policies actually implemented, and facilitate debate on whether the strategy laid out is the right one. Taking the time to articulate a strategy might even lead to the adoption of better tax policy.”

Labour Treasury spokesman Chris Leslie said: “For all George Osborne’s claims, this damning report exposes the truth about his record.

“The Tories have raised taxes by over £16 billion and the biggest tax rise of all was their VAT hike, which broke their pre-election promise and hit working families and pensioners hard. Yet David Cameron and George Osborne gave millionaires a huge tax cut by cutting the top rate of tax.

“No pre-election tax cut can mask the £1,127 a year which the IFS has said households have lost on average because of tax and benefit changes since 2010. This Chancellor gives with one hand, but takes away much more with the other.

“Labour’s better plan will cut taxes for 24 million working people through a lower 10p starting rate of tax and reverse the Tory tax cut for millionaires. We’ll also cut business rates for small firms and raise an extra £2.5 billion for our NHS through closing tax loopholes and a mansion tax on properties over £2 million.”

Published: Friday 13th March 2015 by The News Editor

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