Middle class workers face stealth tax to curb deficit

The Institute for Fiscal Studies (IFS) has warned that over five million middle-class workers could face stealth tax rises of £600 each after the next election to fill the £25 billion gap in Government finances.

In last week’s spending review, the Chancellor admitted that further austerity measures would be required for at least another five years to fill the black hole in public finances.  However, he failed to outline how this would be achieved.

Paul Johnson, Director of the IFS said it seemed unlikely that the current pace of cuts could continue as it would be ‘very tough’ to make the savings through spending cuts alone.  He called for a serious debate over whether taxes should be raised.

The IFS have suggested that the ‘easiest’ way to raise money for the public finances would be to make higher rate taxpayers contribute more through a process known as ‘fiscal drag’.  This would mean freezing the current £42,285 threshold for higher rate taxpayers until 2019.  Since earnings typically rise with inflation, more people would be pushed into the higher rate tax bracket and those already in the tax bracket would pay more tax each year.

Based on these predictions, five million people would pay the higher rate and by 2019 their tax bills would have risen by £580 a year.

The IFS also questioned whether the current ring fences for spending on education, health and pensions could be maintained if overall spending cuts continued.

George Osborne said he couldn’t rule out further tax rises, but refused to be drawn further on the matter saying;

“I’ve never in the seven or eight years I’ve been shadow chancellor and Chancellor made clear guarantees about tax rises because that’s a very silly thing.”

Instead, he insisted that the Government wanted to tackle the ‘root cost’ of government first, rather than reach for higher taxes.

Ministers had previously said that 80% of savings would come from spending cuts and 20% from taxation, but the IFS said that the Government would have to raise taxes by at least £6billion if it was to keep its commitment at the next election.

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