Post Budget Briefing 2011
Philip Booth Editorial Director The Institute for Economic Affairs
Why liberalisation? • Government’s plans assume 2.6% real output growth • If real output grows at (say) 1.5%, debt reduction will be derailed • Government has not allowed for supply-side shocks in its growth projection (e.g. higher taxes, regulation, oil prices etc) • Output growth has been below trend growth rate • “Boom” and subsequent “bust” requires reallocation of economic resources • We need to ensure people made unemployed by government can be re-employed by the private sector – rapidly
Importance of liberalisation? • Trend growth rate may have fallen by nearly 1% due to increases in government spending, taxation and regulation • Youth unemployment at record levels • The prize is great – lower unemployment, faster deficit reduction, higher tax take at lower rates, higher real earnings growth
The rhetoric • 100 pages being cut out of the tax code in a process of tax simplification • Employment regulations costing £350 million being dropped • Moratorium on new business regulation for businesses with fewer than 10 employees for three years • Liberalisation of planning; house deposit scheme • Raising of tax thresholds • Reduction in corporation tax
The reality • The tax code will be cut by about 1% – and new pages will be added. • The tax measures are trivial (e.g. angostura bitters relief and a host of out-of-date reliefs) • Regulations imposed since 1998 alone cost business £90billion – £350million is 0.4% of this • No rolling back of regulation for small businesses – just exemption from new regulation • Planning only liberalised for areas in which building is already allowed • Future tax thresholds to be under-indexed but indirect taxes still to go up with RPI
Sajid Javid MP Member of Parliament for Bromsgrove
Mike Denham Research Fellow The TaxPayers’ Alliance
Cumulative increase in borrowing and spending, 2011-12 to 2015-16, ÂŁ billion
10 year gilts vs CPI inflation, 2000 to 2011, ONS and Bank of England
Debt interest plus public sector pensions plus state pensions plus PFI, ÂŁ billion
Matthew Sinclair Director The TaxPayers’ Alliance
Band D Council Tax adjusted by GDP deflator
Fiscal crunch: the burden facing households over the next decade
Treasury energy price expectations