Dependence on taxes from rich 'is risking public services'

Dependence on taxes from rich 'is risking public services'

The government's growing reliance on tax income from the rich is putting public services at risk, the independent fiscal watchdog has warned.

The proportion of revenue coming from a 'small number of taxpayers' is leaving the state's finances 'particularly vulnerable to shocks' that hit the financial sector or stock markets. 

The top 1 per cent of earners now account for 27.7 per cent of all income tax - up from 24.4 per cent a decade ago.

The warning came as the Office for Budget Responsibility (OBR) delivered a stark message about the need to push on with austerity.  

A new recession in Britain is 'almost inevitable' and increasing public spending without hiking taxes risks disaster, the economic watchdog warne d today.

It said if ministers bowed to pressure to open up the spending taps without paying for it via new taxes that would 'only add to the longer-term challenges'.

The Office for Budget Responsibility said a range of risks confronted Britain and Brexit heightened the 'likelihood and impact' of some of them.

The organisation said because debt was still at historically high levels since the financial crisis, the economy was 'much more sensitive' to 'interest rate and inflation surprises'.  A recession could be regarded as overdue and was 'almost inevitable', it said. 

The grim warnings came in the watchdog''s first 'fiscal risks' report. 

The Office for Budget Responsibility, run by Robert Chote (pictured) said a range of risks confronted Britain and Brexit heightened the 'likelihood and impact' of some of them

The OBR said: 'There are risks from the concentration of tax receipts among a small number of taxpayers.

'In the medium term, this makes our receipts forecasts particularly vulnerable to shocks that affect high earners like a potential negative impact of Brexit on the financial sector or crises that hit asset markets. 

'In the long term, increasing reliance on a small number of taxpayers is likely to make receipts more volatile and harder to forecast, especially as high earners are more mobile and have greater scope to plan their tax affairs.' 

The watchdog said the work of eradicating the deficit had not been completed, meaning that any shock s could be devastating. 

'The budget is still in deficit by 2 to 3 per cent of GDP - as it was on the eve of the crisis - and net debt is more than double its pre-crisis share of GDP and not yet falling,' the report said.

'As a result, the public finances are much more sensitive to interest rate and inflation surprises than they were.'

It added that the fallout of the UK's future trading arrangements with the European Union posed a greater risk to the public finances than the size of a Brexit divorce bill.

While the watchdog would not be drawn into predicting how a potential trade deal with the 27-nation bloc might impact upon the deficit, it said Brexit could exacerbate other risks and fiscal shocks the Government may face.

The OBR said: 'The new Government must also manage the risks posed by Brexit. These do not suppl ant the possible shocks and likely pressures that we have already discussed, but they could affect the likelihood and impact of many of them.

'A lot of attention focuses on the possible 'divorce bill', but, while some numbers mooted for it are very large, a one-off hit of this sort would not pose a big threat to fiscal sustainability.

'More important are the implications of whatever agreements are reached with the EU and other trading partners for the long-term growth of the UK economy, which we do not attempt to predict here.

'If GDP and receipts grew just 0.1 percentage points more slowly than projected over the next 50 years, but spending growth was unchanged, the debt-to-GDP would end up around 50 percentage points higher.'

Chancellor Philip Hammond (pictured at the Mansion House last month) said the analysis was a 'sober reminder' of the challenge the country faces

Responding to the report, Chancellor Philip Hammond said the analysis was a 'sober reminder' of the challenge the country faces and underscored why the Government must deliver on its 'commitment to deal with our country's debts'.

He said: 'The Labour Party would ignore these warnings, adding to the bill that our younger generation will have to pay.

'Under Jeremy Corbyn's catastrophic plans, the independent Institute of Fiscal Studies (IFS) estimate the national debt would be over £100 billion higher by the end of this Parliament than under a Conservative Government - or £6,000 per working household.'

John McDonnell, Labour's shadow chancellor, said: 'The Tories want to b lame Brexit for their failures on the economy, but what this report really reveals is that one of the biggest risks to our economy is Theresa May's weak Government, and the last seven year of Tory economic failure.'

Labour's shadow chancellor John McDonnell (pictured in Westminster last month) said the report proved the biggest risk to the economy was Theresa May's Government 

 

قالب وردپرس

Tweet

Subscribe to receive free email updates: