IFS response to U-turn on plan to cut 45p income tax rate

IFS Director Paul Johnson said: 

"The direct impact of the government's U-turn on the abolition of the additional 45p rate of income tax is of limited fiscal significance. At a medium-run cost of around £2 billion a year, it represented only a small fraction of the Chancellor's mini-Budget announcements. His £45 billion package of tax cuts has now become a £43 billion package - a rounding error in the context of the public finances.

The Chancellor still has a lot of work to do if he is to display a credible commitment to fiscal sustainability. Unless he also U-turns on some of his other, much larger tax announcements, he will have no option but to consider cuts to public spending: to social security, investment projects, or public services. On the latter, the Chancellor has indicated that departments' cash spending plans that run to 2024-25 will be left unchanged, which amounts to a real-terms cut in their generosity in the face of higher inflation. This will squeeze public services, but will not be enough to plug the fiscal hole the Chancellor has created for himself."