George Osborne's third budget 'may turn out to be less fiscally neutral than intended,' says Institute for Fiscal Studies

This article is more than 8 years old

This article is more than 8 years old

George Osborne's income tax giveaways in the budget run the risk of leaving the already overstretched public finances worse off, a leading thinktank has warned.

Presenting its analysis, the Institute for Fiscal Studies (IFS) predicted that the costs of taking lower earners out of income tax and cutting the rate for the super-rich may be hard to offset.

It also criticised a "hotch-potch of reforms" as a failure to make any real tax changes for the UK.

"Perhaps one worry for the chancellor as the dust settles on his third budget is that on his attempt to achieve a fiscally neutral package he has created some risks," said the IFS's director, Paul Johnson.

Referring to government and tax office estimates, he added: "We know pretty much for sure that the increase in the personal allowance will cost about £3.5bn in 2014-15. We do not know with anything like such certainty that the cut in the 50p rate will cost only £100m."

"This budget may turn out to be less fiscally neutral than intended."

On the overall public finances, the IFS said "the underlying problems remain" – with borrowing forecast to fall much less rapidly over the next five years than hoped this time last year.

Osborne's budget quickly came under fire on Wednesday for cutting taxes for the rich while imposing a "stealth tax" on pensioners, making a fresh £10bn attack on welfare and continuing cuts to child benefit.

Osborne, however, argued that his budget was centred on taking the lowest earners out of income tax altogether as he raise the tax allowance to more than £9,000 from next year.

Johnson said it was hard to see it as "the budget of a truly tax-reforming chancellor."

"The hotch-potch of reforms bears as many marks of political expediency as it does strategic reform," he added.

The IFS based its estimates on forecasts from the independent Office for Budget Responsibility. The OBR published its own outlook for the economy alongside Osborne's statement. It forecast that the economy will grow a mere 0.8% this year and 2% in 2013. It predicts that real household disposable income growth will be weak in both 2012 and 2013.