In response to the Chancellor’s statement on Thursday, the IFS said Osborne’s pre-election giveaways are funded by short-term revenue raisers, and further cuts will be needed to balance the books.
It noted the personal allowance increase, the stamp duty cut and the employers’ national insurance cut are being partly funded by banks offsetting their losses against corporation tax.
From April 2015, the amount of taxable profit banks can use to offset prior losses will be capped at 50% with Osborne describing the current system, which could have led to some banks not paying corporation tax for years, as “totally unacceptable”.
The IFS said the measure is short-sighted, as “it works to bring revenue forward, not to increase revenue overall.”
It added such a policy creates extra instability in the banking system, given it “adds uncertainty about the relief of future losses.”
In a presentation, the IFS suggested that, in the long run, Osborne’s measures appear to give away more than the income they will create, noting “the giveaways look more permanent than the takeaways.” It said further cuts to public services or welfare, or tax increases, will be required to finance the measures.
IFS economist Helen Miller further criticised the so-called ‘Google tax’, or diverted profits tax, designed to ensure companies that divert profits offshore are taxed fairly.
She said: “This measure is on top of all the rules we already have. It is not clear how it is going to interact, and it is likely to add some complexity to the system.”
