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| Case for UK tax cuts is stronger, says IFS | Case for UK tax cuts is stronger, says IFS |
| (about 1 hour later) | |
| The argument for the chancellor to cut taxes to boost the economy is stronger than it was a year ago, according to the Institute for Fiscal Studies (IFS). | The argument for the chancellor to cut taxes to boost the economy is stronger than it was a year ago, according to the Institute for Fiscal Studies (IFS). |
| Its Green Budget said the government could safely cut taxes temporarily, without worrying that the Bank of England would raise rates in response. | Its Green Budget said the government could safely cut taxes temporarily, without worrying that the Bank of England would raise rates in response. |
| But the IFS warned a big tax cut would risk undermining investor confidence. | But the IFS warned a big tax cut would risk undermining investor confidence. |
| It also warned that the current risks to the economy meant that there was little scope for long-term tax cuts. | It also warned that the current risks to the economy meant that there was little scope for long-term tax cuts. |
| It cited the pressure on health and pensions spending caused by the ageing population as putting long-term strain on the public finances. | It cited the pressure on health and pensions spending caused by the ageing population as putting long-term strain on the public finances. |
| The IFS predicted that government departments would borrow about £2.9bn less in the current financial year than the latest official forecasts suggested, but warned that risks to the economy from dangers such as a growing crisis in the eurozone could mean that borrowing has to be increased. | The IFS predicted that government departments would borrow about £2.9bn less in the current financial year than the latest official forecasts suggested, but warned that risks to the economy from dangers such as a growing crisis in the eurozone could mean that borrowing has to be increased. |
| The IFS releases its Green Budget every year before the actual Budget. It suggests measures that the think tank considers should be included in the chancellor's plans. | The IFS releases its Green Budget every year before the actual Budget. It suggests measures that the think tank considers should be included in the chancellor's plans. |
| George Osborne is due to deliver his Budget on 21 March. | George Osborne is due to deliver his Budget on 21 March. |
| Room for manoeuvre | Room for manoeuvre |
| "The chancellor faces his third budget with the economy and public finances in considerably weaker shape than he had hoped a year ago," said Paul Johnson, director of the IFS. | "The chancellor faces his third budget with the economy and public finances in considerably weaker shape than he had hoped a year ago," said Paul Johnson, director of the IFS. |
| "His room for manoeuvre is further curtailed by risks that the economy might do even worse than expected, especially if the eurozone should break up." | "His room for manoeuvre is further curtailed by risks that the economy might do even worse than expected, especially if the eurozone should break up." |
| The Green Budget also includes forecasts from Oxford Economics, which predicts that the UK economy will grow by 0.3% in 2012, less than the Office for Budget Responsibility's projection of 0.7%. | The Green Budget also includes forecasts from Oxford Economics, which predicts that the UK economy will grow by 0.3% in 2012, less than the Office for Budget Responsibility's projection of 0.7%. |
| But it warned that "a eurozone crisis would see the UK back into deep recession", with the economy contracting in both 2012 and 2013. | But it warned that "a eurozone crisis would see the UK back into deep recession", with the economy contracting in both 2012 and 2013. |
| Means testing | Means testing |
| The IFS criticises the government's plans to withdraw child benefit from households with a higher-rate taxpayer from 2013, on the grounds that it would create a "cliff-edge" that would mean 170,000 families could increase their income by earning less. | The IFS criticises the government's plans to withdraw child benefit from households with a higher-rate taxpayer from 2013, on the grounds that it would create a "cliff-edge" that would mean 170,000 families could increase their income by earning less. |
| The think tank suggests that the government should instead gradually reduce child benefit as household income rises, using the existing means-testing system that is used to pay child tax credit. | The think tank suggests that the government should instead gradually reduce child benefit as household income rises, using the existing means-testing system that is used to pay child tax credit. |
| It says that the current public sector pay freeze and planned two years of 1% increases will return public sector pay to the same position it was relative to private sector pay before the recession. | It says that the current public sector pay freeze and planned two years of 1% increases will return public sector pay to the same position it was relative to private sector pay before the recession. |
| But it also suggests that there is a strong argument for moving towards more regional differentiation in public sector pay. | But it also suggests that there is a strong argument for moving towards more regional differentiation in public sector pay. |
| The IFS says that in some regions, public sector workers are paid on average 18% more than their private sector counterparts. | The IFS says that in some regions, public sector workers are paid on average 18% more than their private sector counterparts. |