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General election 2017: Tax lock is bad policy, says IFS | General election 2017: Tax lock is bad policy, says IFS |
(35 minutes later) | |
Politicians should avoid any election pledges on a "tax lock" which would rule out rises across three major taxes - income tax, National Insurance and VAT - a think tank has said. | Politicians should avoid any election pledges on a "tax lock" which would rule out rises across three major taxes - income tax, National Insurance and VAT - a think tank has said. |
Theresa May said on Sunday a Conservative government would not raise VAT if it wins the general election. | Theresa May said on Sunday a Conservative government would not raise VAT if it wins the general election. |
But the prime minister declined to back a Tory pledge from 2015 that also ruled out rises in the other two taxes. | But the prime minister declined to back a Tory pledge from 2015 that also ruled out rises in the other two taxes. |
The Institute for Fiscal Studies said the 2015 move had been a "bad policy". | The Institute for Fiscal Studies said the 2015 move had been a "bad policy". |
IFS analysts Helen Miller and Barra Roantree said: "This so-called 'tax lock' is a serious constraint because these three taxes contribute almost two-thirds of tax revenues. | IFS analysts Helen Miller and Barra Roantree said: "This so-called 'tax lock' is a serious constraint because these three taxes contribute almost two-thirds of tax revenues. |
"A government that wanted, or thought it might be necessary, to raise additional revenues in future would be foolish to tie their hands by ruling out increases in these workhorse taxes." | "A government that wanted, or thought it might be necessary, to raise additional revenues in future would be foolish to tie their hands by ruling out increases in these workhorse taxes." |
Mrs May said she would not be making "specific proposals" on taxes unless she was "absolutely sure" they could be delivered. | Mrs May said she would not be making "specific proposals" on taxes unless she was "absolutely sure" they could be delivered. |
She later said the Conservatives "won't be increasing VAT". | She later said the Conservatives "won't be increasing VAT". |
Labour, which has also ruled out a VAT rise, said it would deliver "low taxes for low and medium earners" if it won the general election on 8 June. | Labour, which has also ruled out a VAT rise, said it would deliver "low taxes for low and medium earners" if it won the general election on 8 June. |
Chancellor Philip Hammond's recent U-turn on a planned increase in taxes for the self-employed "highlights the problems with the tax lock", the IFS said. | Chancellor Philip Hammond's recent U-turn on a planned increase in taxes for the self-employed "highlights the problems with the tax lock", the IFS said. |
Mr Hammond was forced to drop the plans after criticism that he was breaking the spirit of the Tories' 2015 election pledge. | Mr Hammond was forced to drop the plans after criticism that he was breaking the spirit of the Tories' 2015 election pledge. |
Tax squeeze | Tax squeeze |
Whoever wins the election needs room to manoeuvre because the government's reliance on tax income is set to reach its highest since the early 1980s, the IFS said. | Whoever wins the election needs room to manoeuvre because the government's reliance on tax income is set to reach its highest since the early 1980s, the IFS said. |
It forecasts that by 2019-20 tax receipts will be at the highest share of national income, at 34.4%, since 1981-82. | It forecasts that by 2019-20 tax receipts will be at the highest share of national income, at 34.4%, since 1981-82. |
Where will the tax take come from in 2017-18? | |
Source: IFS | Source: IFS |
"The next government, whatever its colour, will face pressure to maintain this increase in tax revenues, and possibly to raise further revenues," said Ms Miller and Mr Roantree. | "The next government, whatever its colour, will face pressure to maintain this increase in tax revenues, and possibly to raise further revenues," said Ms Miller and Mr Roantree. |
After the last five elections, chancellors have routinely increased taxes in the 12 months that followed, they said. | After the last five elections, chancellors have routinely increased taxes in the 12 months that followed, they said. |
The government raised an extra £3.5bn in tax after the 2015 election, while after the previous four elections ministers raised an extra £7.5bn on average, the think tank said. | The government raised an extra £3.5bn in tax after the 2015 election, while after the previous four elections ministers raised an extra £7.5bn on average, the think tank said. |