In the final Budget before the election, the Chancellor offered little headline surprises, despite enjoying windfalls  from  higher economic growth which mean that UK government debt will fall as a share of national income this year.

Further rises in personal allowances and increases in the 40% income tax threshold over the next couple of years will provide a boost to household incomes in the short term, complementing the benefits of low inflation and falling unemployment. A new savings allowance, which will provide savers with up to £200 of tax free interest, will also support household spending power.

All of this will be good for growth in the short term. But the Chancellor leaves the UK public finances in an unbalanced position which could prove detrimental over a longer time frame

Tax is too top-heavy and will become even more so following today’s announcements, leaving the UK’s fiscal position ever more dependent on a small number of individuals. Despite record levels of employment, the number of income tax payers in the UK is over 2.5 million lower than in 2007 – a result of weak earnings growth, low quality job creation and the Chancellor’s policy of raising the personal allowance to take individuals out of tax. In contrast, since 2010 the number of additional rate payers has increased by a third to over 300,000.

While taking lower earners out of tax sounds good at first blush, relying on a small number of individuals to raise income tax revenue is going to lead to more volatility in government receipts in the future – creating significant fiscal uncertainty around official projections. In addition, the 45% top rate of income tax is uncompetitive and will almost certainly turn out to be a revenue-loser over time. Cebr’s own research suggests that the revenue-maximising top rate of income tax is less than 40%. The Chancellor could have been more radical in his final Budget with a top rate tax cut, which would have been good for both economic growth and the public finances.

The Chancellor also leaves the UK economy unbalanced, with growth still too reliant on consumer spending. Today’s measures do relatively little to bolster exports or investment significantly, and the Chancellor’s borrowing forecasts are contingent on household debt rising from 146% of income in 2015 to 171% in 2020. In many respects, he hasn’t learned some of the most important lessons from the financial crisis.

[The above is an excerpt from Cebr’s The Prospects Service, a members only-subscription package of Cebr’s economic forecasts and analysis. For more information about a subscription to the service, please click here.]

Number of income tax payers, millions