Piecemeal UK tax rises seem 'inevitable'

George Osborne is expected to rely on piecemeal tax changes and frozen thresholds to raise extra revenue after his pre-election promise to outlaw higher tax rates.

Despite the Conservatives' plans for an overall tax cut, many experts predict the government will end up raising other taxes to reduce debt and limit the scale of spending cuts.

The Institute for Fiscal Studies think-tank has calculated that the past five elections have all been followed by net tax rises of more than £5bn a year.

George Bull of Baker Tilly, a professional services firm, said tax rises "seem inevitable" to reduce debt.

If so, the challenge for the government will be how to limit the economic damage and political fallout, having boxed itself in by ruling out other increases.

But Stephen Herring, head of tax at the Institute of Directors, said a "significant tax hike" would not be needed. Instead, freezing limits and thresholds on things such as the top tax rate and stamp duty would act as "hidden tax collectors".

He also predicted that the new government would consider reforming capital gains tax, inheritance tax, council tax for the most expensive properties and the preferential national insurance treatment of self-employment income.

The Conservatives also plan to raise £5bn a year by an unspecified crackdown on avoidance and evasion. Some advisers expect this to lead to 'benign' tax planning being rebadged as aggressive avoidance.

The Tories' tax-cutting promises were criticised by economists for leaving little flexibility to deal with shocks over the next five years.

Another promise - to push up the inheritance tax allowance to £1m for many couples - has also been criticised for distorting the housing market.

As well as ruling out increases in income tax, national insurance contributions and value added tax, the Conservatives have promised to increase the personal allowance in line with the national minimum wage while guaranteeing to raise it to £12,500 by 2020. The higher rate tax threshold would be increased to £50,000 by 2020.

The biggest potential winnersare those in the upper-middle of the income distribution, according to the IFS. The richest taxpayers are likely to be affected by a £1.4bn pension tax rise for those earning more than £150,000 and plans to increase charges on "non dom" foreigners living in Britain.

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