Commenting on the Chancellor’s budget, IEA Director General Mark Littlewood said:

“The budget lacks ambition but takes some welcome steps. Introducing full expensing for plants, machinery and equipment will encourage business investment and boost productivity. Abolishing the lifetime pension allowance will encourage more people to work. Recognising foreign medicine approvals could save lives by providing earlier access to treatments.

“The budget is nowhere near radical enough to jump-start the British economy. The tax burden and public spending will remain historically high, continuing the doom loop of low growth and high taxes. 

“According to the OBR, freezing income tax thresholds will mean 3.2 million dragged into paying tax and 2.5 million more paying the 40p higher rate or 45p additional rate. Public spending will remain at the highest proportion of the economy since World War II and significantly above pre-Covid levels.

“Public borrowing is £24 billion less than forecast by the OBR last November. The government could have used more of this fiscal headroom to cut taxes, instead of increasing spending by £40 billion over the next five years.

“Public spending on childcare grew by over 500 per cent in real terms between 2001 and 2020. Yet England has the third-highest out-of-pocket childcare costs among developed countries, according to the OECD. Without cutting red tape, more subsidies will only add fuel to that fire.

“For a government claiming to be laser-focused on reaping the rewards of Brexit and promoting economic growth, this is a profound misstep.”

See IEA reaction below on:

• New childcare subsidies
• Increasing economic activity and pension changes
• Investment deductions and corporate tax
• Extension of the energy price cap
• Green technology subsidies
• Regulatory reforms to finance and medicine
• Alcohol and tobacco duties

Commenting on new childcare subsidies, IEA Editorial and Research Fellow Professor Len Shackleton said:

“The new funding for childcare may be a crowd-pleaser but is unlikely to get many more women back into work.

“There are not swathes of women unable to work because of expensive childcare, and in fact, we already have higher numbers of mothers of young children in work than the EU or OECD average. Ultimately, these taxpayer handouts will primarily benefit middle class families where the mother already works.

“Extending the provision of ‘free hours’ but providing low payments to providers could result in a shortage of available places. A better approach would be targeted child allowances or providing vouchers, which parents can top up, while leaving providers to set prices in line with local conditions.”

Commenting on measures to increase economic activity and pension changes, IEA Editorial and Research Fellow Professor Len Shackleton said:

“The measures to increase economic activity are in the right direction but unlikely to be particularly effective.

“It is difficult to bring the inactive back into work. People with severe disabilities, or stuck on NHS waiting lists, are unlikely to return to work. Nor will the abolition of the lifetime allowance bring many retired doctors back from Costa Brava, even if it does slow the exit of the next generation of doctors. Much of the increase in activity could also come from lower-paid and less productive workers, meaning it will have a limited impact on growth.

“The lifetime pension allowance has had pernicious effects. Abolition will make saving for pensions more attractive and help slow the exit of doctors and other highly-paid professionals from the workforce. Though the likely effect should not be exaggerated and this measure does not reduce the need for an overall rethink of pension policy.”

Commenting on the new investment deduction and corporate taxes, IEA Director of Public Policy and Communications Matthew Lesh said: 

“The introduction of full expensing for plants, machinery and equipment will encourage business investment, boost productivity and deliver growth. The OBR suggests the policy will increase investment by £20 billion over three years. It should be made permanent to provide certainty, as the Chancellor has suggested, and expanded to buildings.

“Nevertheless, the ability to immediately write off investment decisions doesn’t change the fact that businesses will be paying almost one-third more tax on any ultimate profits – with corporate taxes going up from 19% to 25%.

“Britain is the only G7 economy increasing the corporate tax rate. Even France, notorious for burdensome business tax rates, cut theirs last year. The UK is putting up corporate taxes more than any other developed economy, with only Colombia (from 31 per cent to 35 per cent) and the Netherlands (from 25 per cent to 25.8 per cent) increasing their rate. Britain’s corporate tax rate will be double that of our neighbours in the Republic of Ireland – where low corporation tax has already led businesses like AstraZeneca to relocate investment from the UK.”

Commenting on the extension of the energy price cap, IEA Energy Analyst Andy Mayer said:

“The government is doubling down on electricity subsidies for hot tubs, swimming pools and empty homes of millionaires. A wiser and less costly approach would be providing targeted support to vulnerable households.”

Commenting on green technology subsidies, IEA Energy Analyst Andy Mayer said:

“The global race to throw taxpayer cash at green technologies is not worth running, let alone winning. We cannot outspend our rivals, and nor should we try. These subsidies risk slowing down decarbonisation as politicians inevitably pick losers, rather than allowing efficient markets and private investors to pick winners. Spending on speculative technologies, like carbon capture and storage, could ultimately be a big waste of taxpayer money.”

Commenting on the post-Brexit regulatory changes to finance and medicine, IEA Director of Public Policy and Communications Matthew Lesh said: 

“The plans for financial sector reforms couldn’t come soon enough; the Chancellor shouldn’t wait till the autumn to begin making changes, but rather bring forward changes as soon as possible.

“The suggested changes to medicines regulations, particularly recognising approvals from trustworthy foreign regulators, is good news. This deregulatory step could prove life-saving for British patients by providing earlier access to treatments.”

Commenting on the budget’s alcohol and tobacco measures, IEA Head of Lifestyle Economics Christopher Snowdon said:

“Putting the tax on rolling tobacco up by inflation plus six per cent is insane when the government’s own figures show that more than a third of this market is already illicit. Jeremy Hunt might as well roll out the red carpet for tobacco smugglers.

“Increasing alcohol duty in line with inflation is the last thing pubs need and is a kick in the teeth for drinkers who already pay some of the highest taxes in Europe.

“It is a strange kind of inflation that goes up if the government pays doctors and nurses more but not if the government puts up the price of widely consumed products.”

ENDS

IEA spokespeople are available for live and pre-recorded broadcast

Contact: media@iea.org.uk / 07763 365520

Notes to editors

• In February 2022, the IEA published Changing the rules: A unilateral approach to non-tariff barriers, which recommended recognising foreign approvals of goods, including the likes of medicines.

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.