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Chancellor’s Budget not as neutral as claimed: IFS

Giving evidence today (25 March) to the Treasury select committee, the director of think-tank The Institute of Fiscal Studies, said George Osborne’s Budget was “not entirely neutral”.

While the the fiscal implications of reforms announced in the Budget were “pretty small” in the context of wider economy, Mr Johnson said any increase in government revenue brought on by pension reforms was purely a “short-term” boost, and counteracted by additional spending.

While government revenues could expect an initial upsurge from annuity reforms, as more people drew down on their pensions, he said this would be also be counteracted by other Budget reforms.

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These included the increase of the personal income tax allowance to £10,500, and increases in spending through other initiatives such as tax-free childcare.

He said: “These are permanent increases to spending. There is a huge amount of uncertainty about how pensioners will behave and whether they will drawdown or buy an annuity, but in the long run there will be a reduction in government revenue.”