Institute of Economic Affairs: Budget 2021 response
Julian Jessop quoted in City AM
Julian Jessop features in The Telegraph Podcast
“After months of damage inflicted by the pandemic and lockdown measures, the Chancellor had the opportunity to deliver a pro-business, pro-growth Budget by lowering and simplifying taxes and slashing unnecessary regulations.
“Instead, we received a barrage of short-term costly measures which risk depressing economic growth, reducing employment, hampering entrepreneurialism, and ultimately harming the long-term economic recovery. Dialling up taxes was a mistake, and our economic growth will be less impressive as a result.”
See IEA reaction below on:
- Corporation Tax increase from 2023
- Fuel duty freeze
- Beer duty freeze
- ‘Super deduction’ tax break
- Extension of the furlough scheme until end-September 2021
- Mortgage guarantee scheme
- Additional support for the self-employed
- Extension of the Universal Credit uplift
- Extension of the business rates holiday
Responding to the decision to increase Corporation Tax from 19 per cent to 25 per cent in 2023, IEA Economics Fellow Julian Jessop said:
“The plan to raise the main rate of Corporation Tax from 19 per cent to 25 per cent in 2023 is more aggressive than expected – and a big gamble. The Chancellor has at least resisted the temptation to raise Corporation Tax now and has provided businesses with some certainty about the future. Smaller companies will also avoid the increase.
“Nonetheless, ‘big’ companies are at least as likely as smaller businesses to pass the increase in tax on to consumers in higher prices, to workers in the form of lower wages and fewer jobs, and to everyone as lower investment and productivity.”
Commenting on the fuel duty freeze, IEA Head of Transport Dr Richard Wellings said:
“The government is right to freeze fuel duty. Fuel duty acts a tax on business, trade and jobs. Raising it would have inflicted economic damage on the UK at a time when we should be focusing on boosting growth.
“Road users are already taxed to the hilt, and considerably more than other sectors. This news will come as a relief to those vital industries which rely on vehicles for their business, including construction and freight.”
Commenting on the beer duty freeze, IEA Head of Lifestyle Economics Christopher Snowdon said:
“Britain has some of the highest alcohol taxes in Europe so a freeze on beer, wine and spirits duty is welcome. The government needs to get the pubs fully open after Easter so drinkers can make the most of it.
“After revealing his lifelong love of Coca-Cola, it is a surprise that Mr Sunak has not got rid of the hated sugar tax. Maybe next year?”
Responding to the plan for a ‘super deduction’ tax break, Julian Jessop said:
“The plan for ‘full expensing plus’, where businesses can set 130 per cent of their capital spending against tax, needs more explanation. 100 per cent expensing makes sense. 130 per cent might simply be an incentive for over-investment and a boon for tax advisors.”
Responding to the Chancellor’s decision to extend the furlough scheme until the end of September, IEA Editorial and Research Fellow Professor Len Shackleton said:
“The scheme may help individuals in the short run but makes it difficult for firms and workers to understand which jobs are retrievable and which are lost.
“It is clear that furloughed employees are disproportionately in sectors such as the arts, entertainment, hospitality and high street retailing where there are major shifts of demand taking place as a result of changed lifestyles and continuing concerns about social distancing.
“Necessary adjustments are being further delayed and time – which could have been used to repurpose businesses or for workers to seek new jobs or retrain – is being lost.”
Commenting on the new ‘mortgage guarantee scheme’, Julian Jessop said:
“The ‘mortgage guarantee scheme’ is a bad idea. It will simply make it easier for young people to overstretch themselves in the housing market, while artificially stoking demand and raising house prices even further. The focus should instead have been on increasing housing supply.”
Responding to additional help for the self-employed, Professor Len Shackleton said:
“Given the difficulties that the self-employed have suffered in lockdown, further financial support makes sense. However, the Self-Employment Income Support Scheme has been badly targeted and is too open to fraud, so it is not an unalloyed blessing.
“The economy needs to be opened up as quickly as possible so people can start earning for themselves rather than relying on the taxpayer. Moreover, the self-employed face the threat of further regulation and higher income tax and national insurance. They need clarity for the future, rather than just short-term handouts.”
Commenting on the extension of the Universal Credit uplift for a further six months, Professor Len Shackleton said:
“Although the most vulnerable needed additional help during the pandemic, continuing across-the-board rises in Universal Credit payments are not a sensible use of taxpayers’ money. A more targeted approach is necessary.
“The temporary uplift was meant to protect people who faced serious short-run disruption to living standards as they unexpectedly became unemployed or had working hours sharply reduced. Those on long-term Universal Credit did not really face the same problem, but they got the extra anyway and will continue to receive more.
“The extension of the £20 a week Universal Credit uplift for 6 months is likely to cost the taxpayer £3bn. The government ought to consider the long-term impacts of such a hefty spending commitment and make savings elsewhere.
“The Chancellor must also be wary not to make this temporary measure a permanent commitment to welfare increases. Sustained high levels of state spending necessitate higher taxes which will reduce chances of a rapid economic recovery.”
Commenting on the extension to the business rates holiday until July, Professor Len Shackleton said:
“Extending the business rates holiday until July is a no-brainer for Rishi Sunak, but businesses will need more than an extension to survive. If the government is serious about giving the high street a new lease of life, they could seriously consider abolishing business rates altogether.
“Rates are a form of property tax, rather than a tax based on profits, and can take no account of current trading conditions. Businesses will again face a cliff-edge scenario when rates are reintroduced: business rate holidays just kick the can down the road.”
Notes to editors
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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.