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Secret budget tax blow for millions more
Joe Murphy and Paul Waugh25.11.08
INDEPENDENT economists today warned that Alistair Darling's mini-budget will mean far worse tax hits than he claimed.
Millions of people earning more than £20,000 will pay more, said the respected Institute for Fiscal Studies, contradicting the Treasury's claim that those with salaries under £40,000 were safe.
It will also mean a punitive 60 per cent tax rate for some higher earners, as well as massive spending cuts.
Anyone earning between £100,000 and £106,000 will be hit because of changes to allowances and thresholds, as will those earning between £140,000 and £146,000 “for no obvious economic rationale”.
It said the squeeze on Whitehall spending after 2011 will crush £37 billion from frontline spending — £2 billion more than the promised cuts in the Conservative manifesto of 2005, which Labour attacked.
The package has also created a “powerful incentive” for the rich to increase their pension contributions to reduce their taxable income.
They might also engage in charitable giving, which will cut the Exchequer's revenues.
At the same time, the internationally-respected OECD think tank said Britain's economy will shrink much more sharply than any other G7 country in a “severe” downturn next year.
The criticisms were seized on by shadow chancellor George Osborne, who was today calling for an emergency debate in the Commons.
IFS director Robert Chote said the creation of the new 45p tax band had taken up people's attention, but he warned: “If more of these people declare less taxable income, put more into their pensions, increase charitable giving or engage in avoidance than the Treasury expects, then it may raise less than it hopes.”
Mr Chote also disputed claims that yesterday was a “Robin Hood” budget, warning that the poorest could be hit hardest by the savage cuts in public spending. Mr Chote backed the overall package as necessary, though he said the impact was “uncertain”.
“On balance the risk of acting may be less than the risk of refusing to,” he said. The cuts in Whitehall spending were needed because, he said, there were fears the economy will never fully recover its strength.
“By far the most important reason for the squeeze is that the Treasury believes that the credit crunch will punch a permanent £60 billion hole in the capacity of the economy,” he said.
