Rachel Reeves’ claim that she had no choice about dropping a £30billion tax bomb in the Budget was dismissed by the IFS today.
The think-tank’s director Helen Miller told the traditional post-event briefing that months of briefing about the grim state of the finances had come to almost nothing.
She insisted the Chancellor had made a ‘decision’ to ramp up taxes to increase spending and build more headroom in the books even though the Treasury’s own watchdog had concluded there was ‘no fiscal repair job needed’.
The assessment came as the IFS highlighted the bleak prognosis for household incomes over this Parliament, with wealth barely increasing.
Going out to defend her Budget this morning, Ms Reeves insisted her tax rises were the ‘absolute minimum’ pain for working people today – despite splurging huge sums on benefits.
Rachel Reeves has insisted her tax rises were the ‘absolute minimum’ pain for working people today – despite splurging huge sums on benefits
Rachel Reeves’ claim that she had no choice about dropping a £30billion tax bomb in the Budget was dismissed by the IFS today
The assessment came as the IFS highlighted the bleak prognosis for household incomes over this Parliament, with wealth barely increasing
The IFS estimated that by the new end date of the tax thresholds freeze in 2030-31 4.8million more people will be in the higher rate than was the case in 2022.
A million of those will be directly down to Ms Reeves extending the freeze for another three years.
The Chancellor wriggled on whether the package broke Labour‘s manifesto, claiming that document only committed to not changing tax ‘rates’.
Ms Reeves repeatedly dodged demands to apologise for not telling the ‘truth’ when she constantly assured working people before the election that they would not be targeted.
And she risked fuelling alarm about her future intentions as she refused to confirm taxes will not rise further.
The OBR did downgrade productivity forecasts in its report yesterday, but also took a more optimistic view of tax revenues.
As a result the government’s fiscal position was only £6billion worse than in March, when there was £10billion of headroom to meet the Chancellor’s fiscal rules.
That shift compares to a typical movement of £21billion at fiscal packages, indicating that the revision was merely routine.
Ms Miller pointed out that there had been ‘months and months of speculation about how Rachel Reeves would respond to a significant deterioration in the economic forecasts’.
‘Yet, in the event, there was no big fiscal repair job,’ she said.
‘There was a material downgrade to the OBR’s medium-term productivity forecast.
‘There was also a chunky increase in forecasts of various aspects of public spending.
‘Yet the overall forecast downgrade was minimal. That’s because the Chancellor was saved by a stonking increase in the forecast for tax receipts.’
Ms Miller added: ‘So, having been handed a slightly-worse-than-last time, but definitely better-than-expected forecast, what did she do?
‘In short, she raised spending, and she raised taxes. There’s more spending than taxes for the next three years, meaning higher borrowing.
‘After that, the tax rises are larger, delivering an increase in the Chancellor’s ‘headroom’ from a paltry £10 billion in the March forecast to around £22 billion this time around.
‘It was a borrow-to-spend Budget in the short term, and a combination of a tax-and-spend and tax-and-bank-it Budget in the medium term.’
The IFS estimated that by the new end date of the tax thresholds freeze in 2030-31 4.8million more people will be in the higher rate than was the case in 2022