Paul Johnson argues that the EU places “some pretty severe restrictions” when it comes to indirect taxes, essentially VAT and excise duties. He said that those restrictions “force us to do silly and damaging things”.
He said that one of the most far-reaching and damaging aspects of EU tax law relates to the exemption of financial services from VAT.
“This is a vitally important part of the tax system which we now have a chance to rethink,” he wrote.
Johnson said he has "become increasingly surprised and disappointed” by the chancellor’s decision to increase insurance premium tax (IPT) to 12% — double what it was at last year’s election.
The IFS director urged the Treasury to start working and consulting on how to tax financial services. However, he expects this reform to "take two years and more".
However, he warned, “Making moves in the wrong direction now does not augur well. Let’s use the control we are about to regain wisely and not throw it away on short-term opportunism.”
Last month, the IFS warned that UK workers face the biggest squeeze on their wages in 70 years after a sharp downgrade in the economic outlook, following figures announced in the Autumn Statement.
It also added that UK workers will be earning less in real wages in 2021 than they did in 2008.
Johnson said at the time, “One cannot stress enough how dreadful that is – more than a decade without real earnings growth.
“We have certainly not seen a period remotely like it in the last 70 years.”