POLITICS

Budget 2014: George Osborne's £5 Billion In Tax Giveaways Funding 'Unspecified', Warns IFS

20/03/2014 14:00 GMT | Updated 20/03/2014 14:59 GMT
ASSOCIATED PRESS
Britain's Chancellor George Osborne poses for the media with the traditional red dispatch box outside his official residence at 11 Downing Street in London, as he departs to deliver his annual budget speech to the House of Commons, Wednesday, March 19, 2014. (AP Photo/Kirsty Wigglesworth)

George Osborne pledged nearly £5 billion in tax giveaways in his Budget without specifying how exactly he will pay for it, an influential economic thinktank has warned.

Gemma Tetlow from the Institute for Fiscal Studies (IFS) warned that the chancellor's Budget showed that the giveaways were being funded by "unspecified spending cuts and temporary increases in tax revenues" that has left the state of the nation's finances "weakened".

IFS director Paul Johnson said: "A set of definite and permanent tax cuts look to have been matched by more unspecified spending cuts, some changes in the timing of tax receipts, and our old friend tax avoidance measures.

"A chancellor focused on the sound management of the public finances over the long run would not make a habit of repeating these sorts of manoeuvres."

Osborne's Budget still "leaves us with as little sense as we had before of quite how the very large public spending cuts still in the pipeline will actually be delivered," he added.

Osborne announced £4.9 billion a year in extra tax giveaways, including an increase in the personal tax allowance to £10,500 from April 2014 and cutting beer and bingo duty, Tetlow estimated.

However, she said that they were funded by moves that would only bring in extra revenues on a temporary basis, and by bringing forward expected tax revenues from measures such as clamping down on tax avoidance that would offer no "permanent increase" to compensate.

Although the Treasury predicted initial gains in tax revenues from moves such as the reduction in how much tax people would have to pay in order to withdraw private pensions, the IFS found that the amount of tax gained would rapidly decease and slip into a net loss after a few years - once people have withdrawn their money.

With ministers planning to make billions in welfare cuts thanks to the welfare cap, which was set at £119 billion, the IFS said: "It has become bizarre annual ritual to announce future savings from future cuts to this future benefit."

The warning from the IFS will be uncomfortable for the chancellor, who could be forced to implement further cuts or tax rises to fill any budget black hole in the next parliament. Osborne and his ministers frequently accuse Labour of offering uncosted spending commitments.

Despite Osborne hailing the success of his fiscal austerity measures, the thinktank warned that he was still borrowing £108 billion this year, nearly £50 billion more than planned back in 2010 along with "five more tough years of deep spending cuts to get borrowing down to zero".

Spending in government departments that have not been ringfenced, like international aid, health and schools, will have to be cut by more than a third by 2018-2019, with more of those cuts "still to come", the IFS warned.