Commenting ahead of the 2013 Budget, the Institute of Economic Affairs set out the following recommendations:

• This Budget should reduce spending sufficiently to create scope for significant tax reductions through the removal of ring-fencing of areas of government spending. The removal of ring-fencing should not just apply to health and education but also to those welfare benefits that were hugely expanded by Gordon Brown. The state pension age should also rise faster.


• Taxes that damage growth and raise little revenue should be prioritised for cuts or abolition.


• The annual Budget should be abolished. The government should set out its three-year spending plans in the autumn and the Budget should only be used to setrates and thresholds for existing taxes. All other changes to tax should be dealt with in separate legislation. The annual Budget has become a charade that is used by the government for political purposes.

Priorities for tax cuts and simplification should be those that build positive incentives and attract investment to the UK:

• Raise the threshold of the 40p income tax band and link to wage inflation.


• Abolish Capital Gains Tax.


• Abolish the withdrawal of the personal allowance on earnings over £100K.


• Abolish the 45p income tax rate.


• Abolish Inheritance Tax or at the very least reform it to significantly reduce its burden so recipients are taxed, rather than estates.


• Abolish complex allowances for businesses and use the revenue to lower corporation tax at least to the basic rate of income tax.


• Freeze (or preferably reduce) alcohol and tobacco duty. Not only are these taxes so high that they are encouraging a flourishing black market; they also disproportionately hit the poor.


• Cap an individual’s annual income tax liability to £1 million per annum.

Commenting ahead of the Budget, Mark Littlewood, Director General at the Institute of Economic Affairs, said:

“The Chancellor will no doubt tell us that he is sticking to his plan and staying the course. The problem is that the course he has set is one of fiscal paralysis. The last Labour administration increased spending by over 60%. This government will reduce spending by less than 5%. To pretend that this is bold, tough or decisive is pitiful. In the absence of economic growth, this means that George Osborne has left no room for vitally needed tax cuts. He needs to reach for the chainsaw on public spending and stop telling us how brave he is for wielding a tiny set of nail clippers.”

Notes to editors:

To arrange an interview with an IEA spokesperson, please contact Ruth Porter, Communications Director: 07751 717 718 or Stephanie Lis, Communications Officer: 07766 221 268.

In July 2011, the IEA published Sharper Axes, Lower Taxes: Big Steps to a Smaller State. The research laid out plans to get government spending to below 30% of GDP.

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

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