Ifs: Households Can Expect Lower Incomes

[awaytogo]

http://www.bbc.co.uk/news/business-32498082

In a withering analysis of the major parties' plans, the Institute for Fiscal Studies (IFS) has concluded that households can expect lower incomes, whoever wins the election.

The think-tank said that, on average, most people will see tax and benefit changes which will reduce their income.

If the Tories win, and implement £12bn of social security cuts, they will need to cut benefits by 10%, the IFS said.

Labour's plans for a 10% tax band were dismissed as pointless.

The IFS accuses all the parties of planning to extract a huge amount of money by clamping down on tax avoidance -"mysteriously missed" in all previous clampdowns.

And all of the parties have "a shared lack of any attempt to paint a coherent strategy on tax reform".

Tax plans

Both the Conservatives and Liberal Democrats plan to increase the personal allowance - the amount one can earn before paying income tax - to £12,500 by the end of the next parliament.

But the IFS said that would not help the 44% of people who now pay no tax.

Instead it said the main beneficiaries would be those in "the middle and upper middle parts of the income distribution".

Under Labour and the Liberal Democrats, the number of higher rate tax-payers would increase from 4.9m now to 6.5m by 2020/21.

But Labour's plans to introduce a 10% starting rate for income tax also came in for criticism.

The IFS said this change would be worth a "princely" 50 pence a week to most tax payers.

"There is no point in introducing such a band," it said.

Mansion tax

Both Labour and the Liberal Democrats plan to introduce a mansion tax on properties worth more than £2m.

But the IFS said it would be much more sensible to let the council tax take care of wealth in the housing market.

"Setting up an entirely separate tax is unnecessarily complicated", it claimed.

It said that Labour's plan to raise £1.2bn from the tax annually would mean that owners of properties worth more than £3m would have to pay around £16,600 a year each.

"Setting a revenue target is not a sensible way to make policy," it concluded.

On tax avoidance and evasion, the Conservatives plan to raise £4.6bn by further clamp-downs , Labour plans to raise £6.7bn, and the Liberal Democrats £9.7bn.

"Yet none of the parties has proposed specific measures that would increase revenues by these sorts of amounts."

Welfare reforms

Conservative plans to cut £12bn from the £220bn annual social security budget are also criticised.

The IFS said they were £10bn short of that target in terms of any specific proposals.

If, as the Tories have suggested, pensioner benefits are to be protected, the cuts would have to be "extremely challenging".

They might need to cut child benefit, disability benefits or housing benefits by as much as 10%.

But the other parties have no better plans either, said the IFS.

Labour's pledge to cap up-rating of child benefit by 1% a year would bring zero savings in the first year, and "likely" zero in the second year as well.

All the parties "share a lack of willingness to be clear about the details" of forth-coming changes, the IFS said.

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Wil this affect Mortgage lending.

Edited April 28, 2015 by awaytogo

[Sandwiches33]

nah, they will still be lending 250k with various props to someone who earns 20k in a shit job with the council.

[sPinwheel]

Will this affect Mortgage lending.

Yes. Instead of lending you 4 times your salary they will lend you 5 times.

[TheCountOfNowhere]

House prices to double.

[Si1]

I can imagine the Anna White article now, citing a baby boomer down the pub who has an A level in accounting

"It's clear that in the search for income in a low income world this will push up house prices owing to increased rental demand from the poor" or some such muddled nonsense.

[canbuywontbuy]

And yet, house prices will continue to rise even if we have even LESS to spend. Makes sense.

[TheCountOfNowhere]

And yet, house prices will continue to rise even if we have even LESS to spend. Makes sense.

Only if your on the pyramid.

[goldbug9999]

44% of people who now pay no tax

Clearly sustainable ...

[SarahBell]

http://www.bbc.co.uk/news/business-32498082

But the IFS said that would not help the 44% of people who now pay no tax.

Sorry?

44% of the entire population or just the adult population?

[VeryMeanReversion]

I watched the IFS presentation on the BBC parliament channel yesterday and was impressed.. They came across as very sensible people that could add up. They were obviously unsuitable for becoming politicians.

[crashmonitor]

House prices to double.

Indeed populous kept happy by paper capital gains and 7 figure balance sheets in some cases. No problem that nobody is actually earning or producing anything.

[awaytogo]

Presumably the 44% of people paying no tax don't need any help because they a) either don't work so get benefits which are not taxed b ) they work but make under the tax threshold so get their income topped up by benefits. Why the hell would they need even more help?

Yes will be very interesting the next couple of years, employers are already looking at future pay rises with low inflation as it is, i suspect rises will be minimal if none at all for many including cuts which has been the case for many already, Any government will not leave benefits unchanged if this is the case, cuts are inevitable.

[Ash4781]

Well the blue lot seem to be proposing no tax rises so by inference reducing public sector net debt alll falls on departments and welfare. Pensions being triple locked. Seems like a recipe for massive domestic deflation?

[Snugglybear]

Sorry?

44% of the entire population or just the adult population?

Adult population. It's in the IFS document (link below). 56% of the adult population pay income tax, down from 61% in 2010-11. Some recovery.

http://www.ifs.org.uk/uploads/publications/bns/BN172.pdf

[South Lorne]

Presumably the 44% of people paying no tax don't need any help because they a) either don't work so get benefits which are not taxed b ) they work but make under the tax threshold so get their income topped up by benefits. Why the hell would they need even more help?

..to keep them voting Labour ..after all it was Gordon Brown's introduction of tax credits which paved the way for almost a communist society reliant on credits to live a life and on the Labour party to keep increasing them ...people owned and controlled by the state....this is why they encouraged immigration from Europe to flood the market with labour and thus lower wages....