Stagnating Economy Looms Over the Budget, says IEA Executive Director
2 March 2024
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Commenting on the upcoming Budget (Wednesday 6th March), Tom Clougherty, Executive Director of the free market think tank, the Institute of Economic Affairs, said:
“The big story is the continuing stagnation of the British economy. The latest figures suggest we’re already in recession – and that per-capita GDP has declined for seven consecutive quarters. This is a disaster for living standards and ought to be the Government’s primary focus at the Budget. If there is fiscal headroom for tax cuts, priority should be given to reforms that could have a meaningful growth effect.
“The Chancellor could make some helpful changes to corporation tax and business rates at limited cost to the Exchequer. The real prize, though, would be the abolition of stamp duties. There would be a fiscal hit from abolishing Stamp Duty Land Tax, but the distortions it causes in a tight housing market are so destructive that the cost is clearly worth bearing.
“The Chancellor should steer clear of gimmicky policy measures like the rumoured ‘British ISA’ or 99% mortgages. Both would represent unwelcome, government-backed market distortions. In the latter case, the result is likely to be yet another self-defeating demand subsidy for a select group of home-buyers – when what we really need is massively increased supply.
“Abolishing non-dom status, introducing a ‘vape tax’, and extending windfall taxes on oil and gas risk unintended negative consequences too – with little fiscal upside. I hope this speculation doesn’t indicate a last minute scramble to keep to the fiscal rules. Tax policy should be made for the long term – not on the fly in response to a rolling (and changeable) five-year debt forecast.
“Budgets are often zero-sum events, characterised by rancorous debate over who gets which share of a fixed pie. But economic policymaking does not have to be that way. Recent IEA research has stressed how supply-side liberalisation – in housing and other markets – can boost competition, reduce prices, and drive up living standards, all while boosting income mobility. There are win-wins out there if we look for them.”
ENDS
Notes to Editors
Contact: media@iea.org.uk / 07763 365520
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.
“The big story is the continuing stagnation of the British economy. The latest figures suggest we’re already in recession – and that per-capita GDP has declined for seven consecutive quarters. This is a disaster for living standards and ought to be the Government’s primary focus at the Budget. If there is fiscal headroom for tax cuts, priority should be given to reforms that could have a meaningful growth effect.
“The Chancellor could make some helpful changes to corporation tax and business rates at limited cost to the Exchequer. The real prize, though, would be the abolition of stamp duties. There would be a fiscal hit from abolishing Stamp Duty Land Tax, but the distortions it causes in a tight housing market are so destructive that the cost is clearly worth bearing.
“The Chancellor should steer clear of gimmicky policy measures like the rumoured ‘British ISA’ or 99% mortgages. Both would represent unwelcome, government-backed market distortions. In the latter case, the result is likely to be yet another self-defeating demand subsidy for a select group of home-buyers – when what we really need is massively increased supply.
“Abolishing non-dom status, introducing a ‘vape tax’, and extending windfall taxes on oil and gas risk unintended negative consequences too – with little fiscal upside. I hope this speculation doesn’t indicate a last minute scramble to keep to the fiscal rules. Tax policy should be made for the long term – not on the fly in response to a rolling (and changeable) five-year debt forecast.
“Budgets are often zero-sum events, characterised by rancorous debate over who gets which share of a fixed pie. But economic policymaking does not have to be that way. Recent IEA research has stressed how supply-side liberalisation – in housing and other markets – can boost competition, reduce prices, and drive up living standards, all while boosting income mobility. There are win-wins out there if we look for them.”
ENDS
Notes to Editors
Contact: media@iea.org.uk / 07763 365520
- Tom wrote in The Times earlier this week previewing the Chancellor’s options ahead of the Budget and setting out the case for a Stamp Duty cut: It is time to stamp down on stamp duties.
- Economists Justin Callais and Vincent Geloso authored new IEA research arguing that government red tape on housing and the labour market have undermined social mobility: Wealth Generation: How to Boost Income Mobility in the UK.
- IEA Economics Fellow Julian Jessop wrote in City AM last week, stating that “the UK’s economic problems clearly run deep, and tax cuts alone will not fix them”: Britain needs to grow up – and have real conversations about the economy.
- IEA Head of Lifestyle Economics Christopher Snowdon responded to reports of an impending vape tax by arguing that a tax on e-cigarettes is a tax on smoking cessation.
- IEA Director of Public Policy and Communications Matthew Lesh has written new research arguing that red tape has caused significant spikes in the costs of energy, housing, and childcare: Graphic Content: How red tape is fuelling the cost of living crisis.
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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