The UK's fiscal position is unenviable and, come October's
Budget, the new government has warned that taxes will rise. With
many of the taxes best suited to substantial revenue-raising
seemingly ruled out in Labour's manifesto, the Chancellor will
find she has limited room for manoeuvre.
Pensions taxation and capital gains tax could be candidates for
raising significant revenues. Both could be perilous. Simply
restricting up-front income tax relief on pension contributions
would make for an ever more jumbled tax system and add to harmful
economic distortions. Capital gains tax meanwhile would need to
be carefully reformed or risk acting as a drag on saving and
investment, thereby harming the government's growth mission.
But October's Budget also presents opportunities. Even in the
absence of revenue pressures, much of the UK tax system is
screaming out for reform. From council tax to inheritance tax to
the treatment of pensions, there is no shortage of defects. Were
the coming Budget to remedy them, it could deliver not only
revenue but a tax system that is both fairer and better suited to
minimising taxation's harmful impacts on growth.
Isaac Delestre, Research Economist, Institute for Fiscal
Studies said:
‘With large swathes of the tax system seemingly off-limits due to
Labour's manifesto commitments, the Chancellor is going into this
year's Budget with one hand tied behind her back. There will be a
temptation to increase revenues in ways that would be
economically damaging. Stamp duty deserves a special mention as a
tax that should not be increased. But also has the power to fix
some of the more glaring deficiencies of our tax system: taxes on
pensions, capital gains and inheritances (to name just three) are
all crying out for reform. If she takes the opportunity to
improve taxes, as well as increase them, she could be rewarded
not only with more revenue but also with a tax system that is
fairer and less of an impediment to growth.'
ENDS
Notes to Editor
Options for increasing taxes is an IFS briefing by Isaac
Delestre as part of the IFS Green Budget.
