(qlmbusinessnews.com Tues. 25th June, 2024) London, UK —
Political Silence on Public Finances Will Lead to Higher Taxes, IFS Reports.
The UK's primary political parties have avoided addressing significant issues concerning public finances in their manifestos, and it would be a “considerable surprise” if taxes are not increased over the next five years, warns a leading think tank.
The Institute for Fiscal Studies (IFS) has accused both Labour and the Conservatives of engaging in a “conspiracy of silence” and ignoring the “painful choices” that need to be made.
The IFS points out that the UK is experiencing its highest debt levels in over 60 years, with taxes near record highs and public spending having ballooned, yet public services are still “visibly struggling”.
While the government is grappling with substantial interest payments on debts and rising welfare costs, spending on health is expected to increase due to an ageing population, and defence funding will also need to rise. Concurrently, economic growth remains sluggish.
‘Trilemma'
Paul Johnson, director of the IFS, stated: “These raw facts are largely ignored by the two main parties in their manifestos.”
He emphasised that “huge decisions over the size and shape of the state will need to be taken, which will likely mean either higher taxes or reduced public services”.
According to the IFS, whichever party wins the upcoming election will face a “trilemma”: “Raise taxes more than outlined in their manifesto, cut some areas of spending, or borrow more and accept rising debt for a longer period.”
“What will they choose? The manifestos leave us guessing.”
Mr Johnson also criticised both Labour and the Conservative Party for ruling out increases to income tax, National Insurance, and VAT.
“Despite a damaging rush to rule out increases in various tax rates, it will be a considerable surprise if no other taxes are increased over the next five years,” he said.
In response to the IFS analysis, Prime Minister Rishi Sunak said: “We have a fully costed manifesto that can deliver tax cuts for people at every stage of their lives. This is largely funded by finding savings in the growth of the welfare budget, which has been growing at unsustainable levels since the pandemic.”
Labour leader Sir Keir Starmer commented: “The economy has flatlined for 14 years, and that is exactly what we want to change. That's why we have set out plans for growth in our manifesto.”
The Liberal Democrats maintain that their manifesto is “fully costed”. A spokesperson stated it would allow the party “to invest in our public services and rescue our NHS, funded by asking big banks and billionaires to pay their fair share”.
The IFS condemned the lack of transparency regarding plans to keep income tax thresholds frozen for an additional three years, which will raise £10bn annually. The Tories, Labour, and the Liberal Democrats all support this measure.
The IFS also questioned the feasibility of raising £5bn by “cracking down” on tax evasion and avoidance. Mr Johnson remarked, “Maybe,” but added that none of the manifestos “highlight the fact that, according to official estimates, most of the shortfall in HMRC collections comes from the self-employed and small businesses rather than large conglomerates”.
‘Poisoning the Debate'
The think tank also reviewed the manifestos of the Green Party and Reform.
The IFS noted that the Green Party had proposed major spending plans to be financed by tax increases and an additional £80bn in borrowing annually. Reform, on the other hand, proposed cutting taxes by £90bn and increasing spending by £50bn, supposedly funded by an unspecified £150bn package of measures, including cuts to welfare and “government waste”.
Mr Johnson stated that the policies outlined by the Greens and Reform are unlikely to be implemented. “But the suggestion that they have radical ideas which can realistically make a positive difference, when in fact they propose unattainable goals, helps to poison the entire political debate,” he said.
The Green Party disputed the IFS's suggestion that “our proposal to tax wealth fairly to generate the money to mend our broken public services is unattainable”. A spokesperson said their proposal aims to transform the UK economy to resemble European countries “where tax is much higher as a proportion of GDP, and the government plays a stronger, more interventionist role in the economy”.
Reform has been contacted for comment.
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