E&Y warns income tax changes will leave holes

The senior economic adviser to Ernst & Young’s ITEM club has warned
fiscal gaps opened up by income tax breaks for low income families will need to
be addresed.

Hetal Mehta said investors would want assurances that the numbers added up
deal agreed between the Conservatives and Liberal Democrats
which is said to
feature a rise in the tax-paying threshold for low earners.

“Going forward, investors will seek reassurance that there is commitment to a
significant reduction in the deficit,” Mehta said.

“While the intention to begin fiscal tightening this year has been agreed,
the rumoured increase in the income tax personal allowance will leave a hole in
the plans that will need to filled by even greater spending cuts or tax rises

The emergency Budget which has to be held within 50 days must go into detail
on the proposed public spending cuts, Mehta said.

“Any hint that all measures are not fully costed will lead to upward pressure
on gilt yields and put sterling under further stress,” Mehta added.

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