Tax and Fiscal Policy

Chancellor not credible on deficit reduction


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Energy and Environment

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IEA response to the Autumn Statement

Responding to today’s Autumn Statement, Mark Littlewood, Director General at the Institute of Economic Affairs, said:

“The Chancellor has basically stuck to his spending plans, but not to his deficit plans. Low growth and weak tax revenues demanded that he made greater reductions in spending today. His plan is now to add around £6,000 to the national debt for every man, woman and child in the UK between 2013 and 2018. By the end of this Parliament this will mean the UK’s national debt is close to £65,000 per household.

“It’s clear the government is still failing to take the necessary action to restore economic credibility. It’s all very well acknowledging the need to get public spending under control, but it requires substantial reform.

“Limiting benefit rises to 1%, scrapping the planned fuel duty increase, devolving power over teacher pay to schools and cutting corporation tax are steps in the right direction. But they are tiny, tinkering measures – not radical reforms.

OBR forecasts

“The Chancellor is now relying very heavily on the Office for Budget Responsibility’s growth forecasts being accurate. They now project that the UK economy will grow by 11.5% by 2018. But to date, the OBR have taken too rosy a view. If their over-optimism about UK growth in 2012 is repeated in their forecasts for the next five years, the UK economy will actually shrink by 4% rather than grow at all. For every decimal point of OBR over-optimism, the UK’s fiscal situation will deteriorate markedly.

An alternative plan

“Rather than giving up on his fiscal rules and pushing the timeframes out, the Chancellor should have found sizeable savings in public spending. Rebalancing Britain’s economy away from the public to the private sector is the key to long-term growth. Such action would have allowed him to announce much needed tax cuts.

“Public spending in 2009/10 was around 48% of GDP. Today’s statement should have set out spending plans aimed at reducing it to around 30% of GDP by 2015. It should have looked at proper privatisation of infrastructure and regionalisation, as well as liberalisation of planning for schools, houses and businesses.”


Prof. Philip Booth, Editorial Director at the Institute of Economic Affairs, said:

“Once again, the government must answer questions as to why older people are being treated differently from younger people in the attempts to cut government spending. The attempts to reduce the benefits bill are welcome but, at the same time, the government will be increasing pensions by more than both inflation and wage increases. This will lead to extra spending commitments year, after year, after year and potentially less room for tax cuts.

“At the very least all benefits should have been frozen, but ideally the Chancellor should have announced an end to universal benefits such as child benefit and winter fuel allowance. He should have committed to reduce the staggeringly high marginal tax rates people face and to reform the welfare system to ensure it was genuinely based on contributions.”

Notes to editors

To arrange an interview with an IEA spokesperson, please contact Stephanie Lis, Director of Communications: 020 7799 8909,

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.

The IEA is a registered educational charity and independent of all political parties.

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