Tax and Fiscal Policy

Chancellor “can only do so much” to get the economy moving



Professor Len Shackleton writes for CapX


Christopher Snowdon quoted by The Daily Telegraph

IEA responds to the Chancellor's summer economic update

Commenting on the Chancellor’s Summer Economic Update, Professor Syed Kamall, Academic and Research Director at the Institute of Economic Affairs said:

“We are in an unprecedented situation and there remains the issue that many individuals and families are fearful of leaving their homes to resume every day activities. The Chancellor can only do so much in terms of measures introduced to get the economy moving.

“The cut to Stamp Duty is welcome but why isn’t it permanent? It is a destructive, regressive tax that clogs up the housing market and limits labour mobility. Making it permanent would get the property market moving and encourage those who want to downsize as well as those looking for family houses, freeing up homes for first-time buyers.

“It is disappointing more was not announced to encourage private investment in infrastructure – such as reopening old railways or rezoning to allow homes to be built in places being vacated by shops, such as high streets.”


Commenting on the government’s plan for jobs, Professor Len Shackleton, Editorial and Research Fellow at the Institute of Economic Affairs said:

“The Chancellor has likely found a politically popular policy by offering subsidies for those employing under 25s but we should not expect too much real benefit.

“Recruitment subsidies have many drawbacks. Workers are taken on who would have found work anyway, with the taxpayer subsidy simply boosting the employers’ profits. The target group, in this case the young unemployed, are taken on at the expense of another group—say, older workers, women returners, or the only slightly less young, who become unemployed instead. The schemes also benefit large companies able to take on more subsidised workers over small and medium sized enterprises who do not benefit as much and therefore lose out in a competitive environment and have to shed labour or close their business.

“The real challenge is to deregulate the labour and product markets on a sustainable basis to encourage job creation over the longer term, rather than short-term sticking-plaster schemes of this kind.” 
Commenting on the Stamp Duty holiday and hospitality VAT cut, Julian Jessop, Economics Fellow at the Institute of Economic Affairs said:

“Most economists agree that Stamp Duty on housing is one of the worst taxes and any easing of the burden is welcome. But the Chancellor should go further and extend this into a fundamental review of all taxes on property, with the aim of simplifying the system and allowing local authorities to keep a higher proportion of revenues raised in their area.”

“The Chancellor was right to resist calls for what would only have been a small across-the-board cut in VAT and instead target a larger reduction on the leisure and hospitality sector, where the additional support is most needed. But the ‘Eat Out to Help Out’ scheme may be a gimmick too far. It is at least market-led, in that consumers themselves will decide which businesses should benefit. However, it seems an overly complicated way to deliver a boost to demand lasting just a few days in August.”


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