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IFS says piecemeal taxes create uncertainty

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The Institute for Fiscal Studies (IFS) sees the Treasury becoming increasingly reliant on an ad hoc range of small taxes and VAT, as receipts from corporation tax and property taxes fall and income taxes remain broadly flat. The chancellor’s policy choices have increased complexity and the ‘lack of clear direction on tax policy creates inevitable uncertainty’. See

A new IFS briefing note, The changing composition of UK tax revenues, which examines the decade up to 2020, shows that new bank taxes and measures to reduce tax avoidance have not offset the revenue cost of cutting the rate of corporation tax. Income tax has been drawn from a falling share of the adult population since 2007/08, with a greater proportion coming from the top 1% of earners. VAT revenues have increased with the rate rise to 20%, while revenues from other indirect taxes have fallen, led by the freeze in fuel duty.

The bank levy and bank surcharge were introduced in response to the financial crisis, but were not, according to the IFS, ‘underpinned by a clear strategy’. Similarly, the diverted profits tax, apprenticeship levy and sugar levy have ‘tended to be introduced hastily and without consideration of the full set of effects’.

This approach lacks coherence and creates uncertainty in the tax system. Taken overall, the IFS believes that ‘policy choices will lead to a decline in corporation tax receipts’. Given the risks to tax revenues arising from uncertainty around general economic performance and forecasting tax receipts, the IFS would like to see more of a long-term strategy.

Speaking at a CIOT/IFS event 'Managing the gaps?' this week, Paul Johnson, director of the IFS, highlighted the dramatic decline in North Sea oil revenues and warned of a growing dependency on tax receipts from the very rich.

Issue: 1306
Categories: News