The biggest tax-raising Budget for 28 years has made the Chancellor look less like “Santa Sunak” and “more like Scrooge Sunak”, according to an economic think tank.
The Institute for Fiscal Studies (IFS) said Rishi Sunak is largely funding a mammoth £50 billion squeeze by freezing income tax allowances and hiking corporation tax in “screeching U-turns on Conservative policy”.
In a damning assessment of Wednesday’s Budget, the IFS warned that Mr Sunak’s spending plans to help address the UK’s battered public finances “do not look deliverable” and further tax rises may be needed.
It said the corporation tax increase from 19% to 25% by 2023 was a “gamble” and the move will not have a bad effect on much-needed business investment.
The IFS also said Mr Sunak had been “silent” on long-term recovery plans to address the future consequences of the pandemic.
Paul Johnson, director of the IFS, said: “This was, of course, a tale of two Budgets.
“By the end of the forecast period we are looking at a fiscal tightening of over £30 billion relative to previous plans.
“Take account of the cuts to planned spending announced in the autumn and Santa Sunak, purveyor of billions, today looks more like Scrooge Sunak, cutting spending and raising taxes to the tune of nearly £50 billion relative to his pre-pandemic plans of March 2020.”
Mr Johnson said the Chancellor’s spending plans look “implausibly low” and questioned whether it is realistic to assume spending on the NHS from next year will not be more than before the crisis.
He warned that Mr Sunak is unlikely to meet his goals, “at least not without considerable pain”.
“How he is actually going to fix the public finances remains to be seen,” Mr Johnson added.
Mr Sunak delivered the biggest tax-raising Budget since Norman Lamont in 1993, while the Office for Budget Responsibility said the announcements will increase the UK tax burden to the highest level since Roy Jenkins was chancellor in the late 1960s.
The IFS said freezing the income tax threshold will raise around £9 billion, while the corporation tax changes could see revenues rise by more than £17 billion by 2025.
Mr Johnson said: “Whether that rise in the corporation tax will actually be delivered without additional concessions we will wait and see.
“I reckon 50-50 at best.”
The IFS said that freezing the income tax threshold may only undo a fraction of the increases in the past decade, but it will continue a long-running trend of pulling more people into the higher rate bracket.
It calculates that, by 2025, there could be more than five million higher rate taxpayers compared with 4.1 million currently and “far higher” than the three million there were in 2010.
If spending plans and tax hikes go as planned, the Government will be able to balance the books by 2025, according to the IFS.
“The sad truth is that that would be a balance built on the highest sustained tax burden in UK history and yet further cuts in unprotected public service spending,” Mr Johnson added.