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OBR Official Criticizes UK Chancellor's Tax Policies as Detrimental to Economic Growth

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Nitish Verma
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OBR Official Criticizes UK Chancellor's Tax Policies as Detrimental to Economic Growth

A top-tier official from the Office for Budget Responsibility (OBR), the UK government's fiscal watchdog, has delivered a biting critique of Chancellor Jeremy Hunt's tax policies. The official suggests these measures are undermining the country's economic growth, despite a cut in National Insurance. The critique is centered on the notion that current tax policies don't incentivize work, which could potentially harm the economy.

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Disincentives to Work and Save

David Miles, an executive member of the OBR, cited the high effective tax rates facing many workers on every pound of extra income as detrimental to growth. He argued that levies which discourage work, saving, and investment are also holding back the UK economy. While Miles acknowledged the Chancellor's decision to cut National Insurance by 2 percentage points in the Autumn Statement as an unambiguously positive incentive to work, he noted that workers would still be paying more tax in five years' time due to a series of stealth levies implemented by the Chancellor.

Fiscal Drag and Its Impact

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Fiscal drag, which forces workers to surrender more of their pay to the taxman as wages rise because tax thresholds do not increase in line with inflation, is another issue Miles raised. He told MPs on the Treasury Select Committee that high tax rates at the margin were bad for growth, and controlling and reducing these rates was beneficial. The Chancellor's decision to freeze the level at which workers start paying the basic and higher rates of income tax until 2028 is expected to pull seven million people into higher tax bands over the next five years, according to OBR forecasts.

Stealth Taxes and Their Implications

Miles warned that stealth taxes might be forcing some workers to take on more hours to protect their living standards in a perverse way. The OBR highlighted that previous governments had not adhered to tight public spending plans, leaving the UK in a precarious fiscal position. Higher inflation means government spending is projected to be £19bn lower in real terms in the next parliament compared with previous forecasts. Furthermore, the OBR calculated last week that workers are losing almost five times as much to the stealth raid on income tax as they are gaining from the cut to National Insurance.

This critique comes amidst broader discussions on the impact of fiscal policies on economic performance and the balance between taxation and incentives for work. It underlines the importance of tax policies that not only generate revenue but also encourage economic activity and growth.

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