The IFS’s deafening silence on Osborne’s Budget hole

The deafening silence from the so-called experts at the Institute for Fiscal Studies on the potential for over-55s to use their pensions to avoid tax raises some big questions about the organisation.


You would have thought allegations of a potential £24bn hole in the Government’s pension proposals would be about as exciting as things could get for the go-to think tank for all things Budget-related. So it is surprising the IFS persistently refuses to comment on the matter.

Of course the state coffers will not suffer a crisis-inducing £24bn loss of revenue in 2015/16. On reflection, the £24bn figure is probably too high – £20bn is probably closer to the figure lost if everyone over 55 washes pay through pension rather than salary, saving billions in NI and income tax in the process. And in any event, most people won’t take advantage of this loophole because their employers won’t let them.

But some will. How many, only time will tell. But in a poll of 39 of some of the best brains in corporate pensions advice at the Corporate Adviser summit last week, none said there would be no tax loss from this policy, and two thirds said at least 10 per cent of the possible £20bn tax avoidance up to grabs would be avoided – a figure of £2bn, in one year almost wiping out the £3bn the Treasury has said the policy will bring in over the next parliament.

A third of those polled thought more than 20 per cent would be avoided – which would add up to somewhere in the region of £4bn lost to the Treasury, in a single year. And this poll was done before the government had gone out to the media telling the public they will be able to use their pensions like bank accounts. For the record, the introduction of the £10,000 annual allowance for those who make use of the new freedoms would cut the tax avoidance on the table by half, but only after 2015/16. So that’s just £1bn to £2bn a year ongoing leakage then.

Yet despite these chunky numbers, the IFS remains deafeningly silent on the subject. Why is this?

Obviously such a hole is embarrassing to the Treasury and to George Osborne personally, given the extent to which the Conservatives have been making political capital out of the new freedoms. And yes the IFS does have very close links with the Treasury – Rupert Harrison, chief economic adviser to George Osborne and the man described by The Spectator as ‘the man behind the Budget’, is a former IFS employee.

But I have seen no evidence that suggests political bias on the part of the IFS, so there must be another reason.

I have made at least six enquiries of the IFS for a view on this subject – the last of which suggested in clear terms that failure to give a view could be seen as reputationally damaging for the organisation. It is a reflection of the respect I have had for the organisation that it was them I contacted for validation, or rejection, of a calculation that I have done with the assistance of industry figures. If you are a journalist with a query about tax leakage, who do you go to? The IFS.

As well as a few avoided emails or ‘relevant people on holiday’ emails, I have been told a couple of startling reasons for the IFS not giving a view. The IFS’s press office told me “We have not done work in this specific area – so do not yet know the answer,” and “I am waiting to hear back from one more colleague but so far I am afraid none know enough on this aspect of pension policy”.

This sudden inability to form an opinion on a potential tax leakage issues is curious, to say the least. The IFS felt confident enough in the subject matter to be able to pour cold water on the LibDems’ pension taxation changes at its party conference earlier this month. And given the IFS has held itself out as competent to give a verdict on the entire Budget back in March, in its analysis put out on 20th March 2014, you would have thought it would have to be able to get its head round the question I have raised to be able to do so.

In fact its Budget analysis introductory remarks accept and propagate the Government line that the “liberalisation of pension rules is expected to lead to more tax revenue over the next few years”. So how can it make this statement if it admits it is unable to comment on a potential tax leakage story that has made the front page of a national newspaper?

Why is the IFS avoiding answering what is clearly a legitimate question from a journalist? Are the individuals in the organisation feeling a little bit bad that they weren’t clever enough to spot it first time around? They are in pretty good company – it took most people a couple of months to fully realise what a leaky tax system the new rules create – without extra restrictions on tax-free cash. And as I have already written, it seems pretty clear that the Treasury did not spot the multi-billion pound salary sacrifice problem when it launched the Budget without having consulted the industry. 

Yes this sounds like the petulant whinge of a journalist who can’t get a comment out of an organisation on a story he is trying to ramp up. It’s one thing to say ‘we see where you are coming from, but we haven’t done the analysis yet’ – it’s another when they say the question is too hard so we aren’t going to bother looking at it.

When independent organisations start refusing to comment on subjects that are in their core area, you have to wonder what is going on. What do you think’s going on?

John Greenwood is editor of Corporate Adviser