IFS calls for parties to avoid general election 'tax lock' pledges

Think tank says lock is bad policy and is a serious constraint on the ability of the government to raise additional revenues

By Josh May

02 May 2017

A respected economic think tank has urged political parties not to make manifesto pledges ruling out raising taxes throughout the next Parliament.

Theresa May yesterday said the Conservatives would not increase VAT above its current level of 20%, but appeared to distance herself from David Cameron's 2015 manifesto commitment not to increase any of VAT, national insurance or income tax.

Labour’s John McDonnell also ruled out raising VAT but signalled income tax would go up for higher earners.

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The Institute for Fiscal Studies described the so-called tax lock as “unwise” and a “serious constraint on the ability to raise additional revenues”.

Together, national insurance, income tax and VAT make up almost two-thirds of the UK’s tax revenues, the IFS said.

“Regardless of whether a party wants to raise or cut taxes overall, the tax lock is bad policy and should not be repeated in any of the upcoming manifestos,” said Helen Miller, the author of the IFS briefing.

“Constraining the workhorse taxes in this way prevents desirable tax reforms, as we have seen in relation to the taxation of the self-employed, and restricts the policy levers available to deal with any unexpected change in the economy.”

The 2015 tax lock forced chancellor Philip Hammond into a humiliating U-turn after he tried to raise national insurance contributions for the self-employed in his spring Budget.

Speaking yesterday, May all but confirmed that the pledge would not be repeated in the coming manifesto.

“We have absolutely no plans to increase the level of tax but I’m also clear I don’t want to make specific proposals on taxes unless I’m absolutely sure I can deliver on those,” the Conservative leader told the BBC.

McDonnell also outlined the Labour party’s approach to tax rises in an interview with ITV’s Peston on Sunday.

“We will end the tax giveaways to the corporations and the rich; we will demonstrate item-by-item how we can fund those and that will be about a fair taxation system. But let me give this assurance: there will be no increase in income tax for middle and low earners.

“We will protect middle and low earners. I will say also we will not increase VAT and I want you to ask Theresa May that question because, if you remember, last time the Tories promised no increase in VAT and then they increased it afterwards. That’s a regressive tax; it falls on some of the poorest and middle earners as well, so that’s one guarantee we’re giving.

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