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The era of low tax rates is coming to an end and British people will have to get used to paying much higher levels of taxes for decades to come, says head of Britain’s leading UK economic research institute said. I.
A sluggish economy and unwillingness to abolish various publicly funded services and political commitments leaves the government with few options to cut taxes, according to Paul Johnson of the Institute for Fiscal Affairs. means
He said Britain would likely see record tax increases over the next two years, after which such levels would be “permanent”. I’m here.
The tax-to-GDP ratio is the most common way to measure the amount of tax paid. Having stabilized between 30-32% of GDP over the last 40 years, it is now at 33.5% and will reach 37.5% by April 2025, according to the Office of Budget Responsibility (OBR) projections .
“Within a few years, taxes will be at an all-time high. With corporate and income taxes so high and the economy growing so poorly, this is a big and rapid change,” he said. I was. “My impression is that neither voters nor the government can see an acceptable way to drastically cut spending, and if they don’t, this tax increase will be permanent.
“This is one of the hardest questions that politicians have a hard time talking about. You can decide whether to raise the public pension age or cut the public pension, but I do not detect a public desire for these things .”
Johnson, who worked as director of public spending at the Treasury Department before heading IFS, also said in an interview: Ithe other big problem Hunt and Snack had to grapple with because of their budget.
These include why the prime minister could find £6bn to give motorists but not striking public sector workers, the economy needs from future Brexit renegotiations and immigration and how Hunt can help reverse the long-term trend of young people working, paying to sustain the lifestyles of older voters. .
here he answers IBudget questions:
Can taxes be lowered on Wednesday if Hunt wants?
no.
Finances will be better than predicted in November, but still significantly worse than they were a year ago.
The OBR is likely to say that over the medium term the UK’s finances will remain quite difficult.
Unfreezing the tax base is also unlikely, as it is a politically easy way to raise a lot of money, much easier than raising interest rates. One of the reasons household incomes will decline over the next year is related to these threshold freezes.
Can Snack meet his goal of halving inflation this year?
When he says it’s an inflation target, it’s really a repeat of the Bank of England’s projections.
The central bank now thinks inflation will come down later this year, and I see no reason to disagree. Of course, no one knows what will happen to energy prices, but my prediction is that energy prices will be halved.
He can’t achieve it, but it does…but not through his own work.
To what extent are young people affected by the recession?
The first few months of fall 2020 look devastating for young people entering the labor market. But it didn’t turn out that way.They’re not really doing worse than other companies, partly because the labor market is so tight. [unemployment so low].
This is a very strange recession… In contrast to many previous recessions, this one may not be any worse for young people than it is for others.
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What do you do when you’re over 50 and re-employed?
On Wednesday the government may consider some rules on pension taxes, but that’s a pretty small part of the picture, I can’t imagine [these changes] Very effective in reversing trends.
When it comes to voluntarily retiring, you can retire early, so it’s hard to know how to undo it.
Lifetime benefits recommended [the amount you can save tax-free, currently set at £1.07m] It will increase, but I don’t think there is any evidence that this is a big problem for a few well-paid doctors and a few others in the public sector.
One question is whether this particular generation of people affected by Covid will leave, and whether the next generation will return to pre-Covid trends. [of retiring at the usual age].
The second question is, is there any way to get someone back who just left? We are completely in the dark on this issue at the moment.
Should Brexit be renegotiated?
In terms of economic growth, it is very important to get as close as possible to the European single market. I don’t know what is feasible, but I do know that being closer is beneficial.
Should immigration be encouraged for economic health?
It is effective to invite people from other places [for growing the economy]…and the route used by many countries. But there are trade-offs as well. Open borders have significant political implications.
In my view, in the long term, surviving without mass immigration is probably something we hope to achieve. cannot, and some kind of advanced immigration may be the only way.
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Are young people paying unfairly for a retiree lifestyle?
There was a long period when the younger people did less well than the older people.
Part of the problem is that monetary policy over the past 15 years has pushed up asset prices, the value of things like housing and pensions, as well as low interest rates. This makes it difficult for young people to buy a house and save a pension.
At the same time, fiscal policy is leaning in the same direction, protecting pensions and health at the expense of education and working-age welfare benefits. And if you graduate after 2012, you can use 9% of your income to pay off your student loans, on top of the income taxes you’ve already paid.
I have a lot of sympathy for the younger generation here, but you shouldn’t try to address the big generational issues with a single budget.
For these reasons, we hope rates stay around 3% rather than returning to 0.5%.
Other things that help are changes in planning rules and building houses that this government finds very difficult to make. This is sort of a 20-year trend, and it will take policy and economic changes a long time to actually change.
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Did the Bank of England anticipate inflation early enough?
Coming out of Covid, we were all wrong.No one really thought there would be two major problems in 2020: unemployment and the deprivation of young people in the labor market. In the end, it turned out that the problem was not unemployment, but inflation.
I don’t think anyone could have predicted such a drastic withdrawal of the elderly from the labor market. It’s interesting how things played out differently compared to what most people were predicting in 2020 and 2021.
Only a few people were concerned about inflation. In hindsight, the degree of monetary easing (quantitative easing) seen during Covid probably wasn’t necessary.
Again, in hindsight, this is something that some of us were a little worried about.Its length and scale could have been more than optimal.
But I don’t think that necessarily means that the policy at the time was wrong.
So it’s no surprise that some of the results were unexpected, given that we’ve never experienced anything like it before.
What about fuel tax?
Public finance calculations assume that fuel taxes will rise in line with inflation, with a reduction of 5 pence per liter, so we will have to make much bigger choices about fuel taxes than usual. . [introduced a year ago] Flip.
If that doesn’t happen, it will cost the Prime Minister £6 billion.
And I certainly ask the following question. If he can find £6 billion for it, why can’t he find it for public sector workers?