IFS backs rise in taxes for self employed

The Institute for Fiscal Studies has backed the Government’s decision to increase taxes for the self employed.

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In a statement today Paul Johnson, Director of the IFS, said it was “a modest, but welcome change” which will leave any self employed person with profits of less than about £15,570 better off. The maximum loss, affecting those with profits over £45,000, would be £589 per year, he said.

Calling for further reform of the tax system, he said: “The tax advantage to being self employed will still run into the thousands of pounds. The really big difference in treatment is the fact that employers pay 13.8% NI on anything they pay to their employees and nothing on anything they pay to self employed contractors. A tax system which charges thousands of pounds more in tax for employees doing the same job as someone else needs reform. It distorts decisions, creates complexity and is unfair. The incentives for companies to claim that people who work for them are self employed rather than employees are huge.”

Thorough review needed

Calling for a much more thorough review of the taxation system, he suggested the Government should never have committed not to raise taxes in its manifesto, saying it was “foolish” and tied Government’s hands “to an absurd extent”.

Johnson added that the amended figures from the Office for Budget Responsibility suggested that the Government was on course for “a third parliament of austerity” in the next Parliament. He said:  “The desire to get to budget balance during the next parliament, especially given demographic pressures, will necessitate yet more years of spending restraint or perhaps yet another post election tax rise.”

He said: “The big story of the last decade [is] a decade without growth, a decade without precedent in the UK in modern times,” adding that forecasts for average earnings to be no higher in 2022 than they were in 2007 was “completely unprecedented”.

And he said the Budget would have less impact on people’s income than the changes and cuts to tax credits and benefits coming in from April. He said: “These will have much bigger effects on people’s incomes than anything announced yesterday.”

Labour, meanwhile, has called for a gender audit of the Budget, saying its analysis shows 86% of Budget cuts since 2010 have fallen on women.

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