Institute for Fiscal Studies Response To U-turn On Plan To Cut 45p Income Tax Rate
4th October 2022
"The Chancellor still has a lot of work to do if he is to display a credible commitment to fiscal sustainability."
IFS Director Paul Johnson said:
"The direct impact of the government's U-turn on the abolition of the additional 45p rate of income tax is of limited fiscal significance. At a medium-run cost of around £2 billion a year, it represented only a small fraction of the Chancellor's mini-Budget announcements. His £45 billion package of tax cuts has now become a £43 billion package - a rounding error in the context of the public finances.
The Chancellor still has a lot of work to do if he is to display a credible commitment to fiscal sustainability. Unless he also U-turns on some of his other, much larger tax announcements, he will have no option but to consider cuts to public spending: to social security, investment projects, or public services.
On the latter, the Chancellor has indicated that departments' cash spending plans that run to 2024-25 will be left unchanged, which amounts to a real-terms cut in their generosity in the face of higher inflation.
This will squeeze public services, but will not be enough to plug the fiscal hole the Chancellor has created for himself."
Kwasi Kwarteng has confirmed that public services face further cuts of up to £18 billion per year.
This comes following his dramatic U-turn on the 45p tax rate.
Budgets will not be topped up in order to take account of soaring inflation, the Chancellor said.
The move has been described by economic experts as one which is likely to have an "extraordinary" impact on the NHS and schools.
Kwarteng argued that it was right to stick within spending allocations made in 2021 despite inflation now being more than twice the forecast peak of 4% made then.
Kwasi Kwarteng
Adam Robertson
Mon, 3 October 2022 at 9:43 am·2-min read
In this article:
Kwasi Kwarteng
British politician (born 1975)
Kwasi Kwarteng has confirmed public services will still face major cuts
Kwasi Kwarteng has confirmed public services will still face major cuts
CHANCELLOR Kwasi Kwarteng has confirmed that public services face further cuts of up to £18 billion per year.
This comes following his dramatic U-turn on the 45p tax rate.
Budgets will not be topped up in order to take account of soaring inflation, the Chancellor said.
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The move has been described by economic experts as one which is likely to have an "extraordinary" impact on the NHS and schools.
Kwarteng argued that it was right to stick within spending allocations made in 2021 despite inflation now being more than twice the forecast peak of 4% made then.
READ MORE: Nicola Sturgeon reacts to Kwasi Kwarteng's 45p tax rate U-turn
He told BBC Radio 4: "I think it's a matter of good practice and really important that we stick within the envelope of the CSR [the Comprehensive Spending Review]."
The Institute for Fiscal Studies (IFS) has warned than an extra £18bn is needed in each of the next two years in order to restore "the real-terms generosity intended", because inflation is sitting at around 10%.
Kwarteng also refused to apologise directly to the nation and to Conservative MPs who had been warned over a possible rebellion on tax plans.
He told the BBC's Today programme: “There's humiliation and contrition and I’m happy to own it."
Kwasi Kwarteng
Adam Robertson
Mon, 3 October 2022 at 9:43 am·2-min read
In this article:
Kwasi Kwarteng
British politician (born 1975)
Kwasi Kwarteng has confirmed public services will still face major cuts
Kwasi Kwarteng has confirmed public services will still face major cuts
CHANCELLOR Kwasi Kwarteng has confirmed that public services face further cuts of up to £18 billion per year.
This comes following his dramatic U-turn on the 45p tax rate.
Budgets will not be topped up in order to take account of soaring inflation, the Chancellor said.
The move has been described by economic experts as one which is likely to have an “extraordinary” impact on the NHS and schools.
Kwarteng argued that it was right to stick within spending allocations made in 2021 despite inflation now being more than twice the forecast peak of 4% made then.
READ MORE: Nicola Sturgeon reacts to Kwasi Kwarteng's 45p tax rate U-turn
He told BBC Radio 4: “I think it’s a matter of good practice and really important that we stick within the envelope of the CSR [the Comprehensive Spending Review]."
The Institute for Fiscal Studies (IFS) has warned than an extra £18bn is needed in each of the next two years in order to restore “the real-terms generosity intended”, because inflation is sitting at around 10%.
Kwarteng also refused to apologise directly to the nation and to Conservative MPs who had been warned over a possible rebellion on tax plans.
He told the BBC’s Today programme: “There’s humiliation and contrition and I’m happy to own it.”
The confirmation of the cuts comes as the Treasury also plans real-terms cuts to benefits.
Speaking to LBC Radio, the Chancellor refused to say whether benefits would be uprated in line with inflation amid the cost-of-living crisis.
He said: “I’m not committed to any spending.”
Pressed on the issue of benefits, he added: “I’m not going to comment on spending today.
