The Institute for Fiscal Studies has criticised George Osborne for a misleading budget pledge to help Britain’s lowest paid workers, and warned that the chancellor’s new soft drinks tax could backfire by raising sugar consumption.



The respected thinktank used its closely watched post-budget analysis to highlight “disingenuousness” in Osborne’s claims he was taking the lowest paid “out of tax”.

It also warned that Osborne had only a 50/50 chance of meeting his goal to put the public finances in surplus by the end of the decade, and attacked a decision to freeze fuel duty for a sixth year running.

Osborne used a series of eye-catching tax changes for small businesses and workers in his budget to distract from a gloomier outlook for the economy after the government’s independent forecasters, the Office for Budget Responsibility (OBR), downgraded the prospects for productivity growth.

The IFS said this even bleaker outlook for productivity – or the UK’s economic efficiency – would hit wages and living standards and dent tax revenues for the exchequer.



That economic backdrop raised the prospect of deeper spending cuts to come, said the IFS head, Paul Johnson, presenting the thinktank’s now traditional postmortem of the budget. “In the longer term the public finances are kept on track only by adding yet another year of planned austerity on the spending side,” he said.

New bleaker forecasts for economic growth published alongside Osborne’s budget meant public finances were £56bn weaker than expected over the next five years, more than reversing the £27bn windfall the OBR predicted as recently as November.

Johnson said Osborne was “running out of wriggle room” and added: “His chances of having a surplus in 2019-20 are only just the right side of 50/50.”

Osborne used his last budget before the June referendum on the UK’s EU membership to woo voters with frozen fuel duty, a freeze on beer duty and an increase to the tax-free personal allowance – the level at which people start paying income tax.

But Johnson slammed the chancellor’s claim that this move to a higher £11,500 allowance in April 2017 would take people out of tax. “The disingenuousness of the rhetoric on the personal allowance continues,” he said.

“The chancellor boasted yesterday that the increase in it ‘means another 1.3 million of the lowest paid workers taken out of tax altogether’. No, it does not mean that.

“Taken out of income tax, yes. But not taken out of direct taxes on income. It remains the case that national insurance contributions, which are just another tax on earnings, start to be paid once earnings rise above about £8,000. Low paid workers are not taken out of tax by raising the personal allowance.”

The thinktank director was critical of Osborne’s decision to freeze fuel duty for a sixth year running, adding: “One must begin to wonder whether these duties will ever rise again, especially given current low oil prices.

“Given that the harm created by driving in terms of increased congestion is rising, as is the harm from carbon emissions created by using petrol, we might also be worried by the economic and environmental cost of continuing with this policy.”

He said the new tax announced on sugary drinks in Osborne’s budget to tackle childhood obesity was a “sound one in economic terms” but that it would be harder to implement than alcohol tax and might backfire.

“A tax on soft drinks is clearly only very partial,” said Johnson. “Only around 17% of added sugar consumed comes from soft drinks – though the proportion in households with children is a little higher.

“Obviously the soft drinks tax won’t have any impact on the other 80+% of sugar consumption – indeed it might increase it as people move away from soft drinks to other sugary products.”

Johnson also called Osborne’s pledge to help whisky exporters absurd. “In a bizarre aside, Mr Osborne linked freezing spirits duty to the importance of whisky exports. Duties are not paid on exports. This is rhetorical nonsense.”