Set the economy free to meet tough challenges ahead

Despite the cuts, the coalition Government will raise our national debt by almost £500bn over this Parliament. This is just the official debt. When other liabilities such as pensions are included, the total debt is already £5 trillion and heading higher. This amounts to a staggering £80,000 per person in the UK.

If the Government thinks the cuts will solve the problem, it is deluding itself. In real terms, public expenditure will fall by just three per cent by 2015. Spending on politically sensitive areas such as health and welfare will be maintained, while the foreign aid budget will actually be increased. More money will also have be spent on interest payments as the debt continues to rise.

Recent tax rises won’t solve the debt problem either. Indeed they may even make it worse. When tax rates are already high, increasing them further tends to reduce the amount raised.

Take the 50p rate of income tax. This will deter hard work and encourage tax avoidance strategies. It will also make it harder for UK-based firms to attract top international talent. Some companies may even decide to move elsewhere. Higher taxes destroy wealth and make both individuals and the government worse off. With little room for manoeuvre on tax rates and cuts, the Chancellor hopes that economic growth will deliver the extra revenues needed to balance the books. But if the recovery falters, the public finances could be in deep trouble again.

Read the rest of the article on the Yorkshire Post website.

Richard Wellings was formerly Deputy Research Director at the Institute of Economic Affairs. He was educated at Oxford and the London School of Economics, completing a PhD on transport and environmental policy at the latter in 2004. He joined the Institute in 2006 as Deputy Editorial Director. Richard is the author, co-author or editor of several papers, books and reports, including Towards Better Transport (Policy Exchange, 2008), A Beginner’s Guide to Liberty (Adam Smith Institute, 2009), High Speed 2: The Next Government Project Disaster? (IEA , 2011) and Which Road Ahead - Government or Market? (IEA, 2012). He is a Senior Fellow of the Cobden Centre and the Economic Policy Centre.