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Tuesday, 15 May, 2001, 17:22 GMT
Tory tax plans 'favour rich'

An independent think tank has questioned the credibility of Conservative plans for saving 8bn to fund tax cuts.

The Institute of Fiscal Studies (IFS) says most of the cuts would benefit the rich more than the poor.

Last week the IFS reported that Labour might have to raise taxes by 5bn per year to pay for its reforms of public services.

The think tanks is also sceptical of Tory claims that the cuts could be financed by reducing fraud and bureaucracy.


A desire to reduce taxes must, if it is to be achieved, be matched by a willingness to identify reductions in the scale of public services.

Institute for Fiscal Studies

"If savings could be made here, it seems reasonable that other parties could also achieve them," the IFS argues.

"In the long run, a desire to reduce taxes must, if it is to be achieved, be matched by a willingness to identify reductions in the scale of public services."

And the IFS warns that, although in the short-term the Conservative tax plans could be financed through increased borrowing, in the long run hard choices would have to be made.

Where are the savings?

The IFS says the Conservative plan to cut 1.8bn in administration is "arbitrary" because much of this supposed increase in the government's cash budget is accounted for by inflation.

And the claim that a privatised New Deal programme would save 400m "is another example of a strong assertion backed by little evidence."

Similarly, the IFS argues that "savings on fraud (in the social security budget) are easier to assert than achieve," and it doubts the wisdom of the plan to save 1.3bn with university endowments and privatising student loans.

Who benefits from tax cuts?

A Conservative budget would mostly benefit those in the middle and top of the income distribution, according to the IFS.

In contrast, Labour's tax changes over the parliament mainly benefited those at the bottom of the income scale, it calculates.

The rich would also benefit most from the 3bn Tory proposal to exempt savings from taxes, while cuts to petrol duty and the partial restoration of the married couples allowance have benefits more evenly spread among the population.

The IFS also points out that the Conservative "long-term aspiration" to raise the threshold for higher-rate taxpayers by 2,500, taking 500,000 people off the higher rate, would give even bigger gains to the top 10% of households.

Conservative leader William Hague and shadow chancellor Michael Portillo insist their tax plans have been carefully costed.

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