600,000 more people fall into higher rate tax
THE NUMBER of higher rate taxpayers will jump from 4.7m this year to 5.3m in 2015-16, a think-tank warned yesterday, saying an extra 2m people will have fallen into the 45p bracket since the start of the coalition’s term.
The Institute for Fiscal Studies (IFS) revealed that, with wages being lifted faster than the increase in the threshold, a rising number of workers will still be hit hard over the next two fiscal years.
Chancellor George Osborne is bringing the threshold up from £41,450 to £41,865 for the coming fiscal year, then £42,285 the following year. But these are effectively increases of just one per cent each year.
The IFS’s analysis of the Budget also says that while Osborne’s new tax cuts are permanent, new measures to increase the Treasury’s revenue will only have a temporary effect.
The IFS suggests that this has become one of the government’s “bad habits”. While measures like the increased personal allowance for income tax reduce revenue every year, the money raised from changes to private pension withdrawal will begin to drop by 2019, and eventually start to cost the government money.
The Treasury also announced that it would move the cost of increased public sector pensions to individual departments, which worsens the government’s financial position in the long term, but appears to grant more fiscal wiggle-room in the short term.
“That is not a sensible way to think about fiscal policy,” said Paul Johnson, director of the IFS. He added that the Budget “leaves us with as little sense as we had before of quite of how the very large public spending cuts still in the pipeline will actually be delivered”.
A Treasury spokesman rebuffed the charges, saying: “The chancellor has been clear that more difficult decisions lie ahead… We have set out clearly the extent of the need for further spending cuts.”