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Budget spending cuts questioned by IFS think-tank Budget spending cuts questioned by IFS think-tank
(35 minutes later)
How the government will pay for tax cuts announced in Wednesday's Budget has been questioned by the think-tank, the Institute for Fiscal Studies.How the government will pay for tax cuts announced in Wednesday's Budget has been questioned by the think-tank, the Institute for Fiscal Studies.
Its director, Paul Johnson, described one spending cut as being "dressed up in very curious clothing". Its director said the Budget "will be remembered for one of the biggest shake ups in the tax treatment of private pensions".
Long term costs of pensions are expected to rise, yet the Treasury says this will result in a higher tax take. But he added forecasts for the impact of this change were based on "highly uncertain behavioural assumptions".
Mr Johnson says treating this as extra government income is "not a sensible way to think about fiscal policy." Paul Johnson also questioned how other cuts would be funded.
He added that Mr Osborne's Budget "will be remembered for one of the biggest shake ups in the tax treatment of private pensions we have seen in a long time." "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," he added.
But he said that there were questions over how increases in income tax and corporation tax allowances, cuts in savings tax and some excise duties would be funded. Mr Johnson said that while liberalised pension rules should mean more tax for the Treasury as pensioners drew down taxable lump sums from their pension pots, it depended "on highly uncertain behavioural assumptions about when people take the money."
"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."
He said that while liberalised pension rules should mean more tax for the Treasury as pensioners drew down taxable lump sums from their pension pots, it depended "on highly uncertain behavioural assumptions about when people take the money."
'Uncertain''Uncertain'
And he said that increased choice for pensioners in the way they managed their pensions could lead to more mistakes.And he said that increased choice for pensioners in the way they managed their pensions could lead to more mistakes.
He said that people at 60 or 65 are known to underestimate their own life expectancy and especially the likelihood of living to extreme old age. People at 60 or 65 are known to underestimate their own life expectancy and especially the likelihood of living to extreme old age, Mr Johnson explained.
He said that new policies to reduce tax avoidance were also "uncertain".He said that new policies to reduce tax avoidance were also "uncertain".
Tax free childcare had also "been made more generous but magically, at no extra cost, said Mr Johnson. Tax free childcare had also "been made more generous but magically, at no extra cost," said Mr Johnson.
"So far as one can tell this just reflects new analysis resulting new estimate. How and why that happened is not transparent.""So far as one can tell this just reflects new analysis resulting new estimate. How and why that happened is not transparent."
He added: "We still lack a proper rationale and evidence base for the more than £7bn a year of public money that is now spent on childcare."He added: "We still lack a proper rationale and evidence base for the more than £7bn a year of public money that is now spent on childcare."