Tax and Fiscal Policy

The Chancellor’s diagnosis was correct but “the medicine is inadequate”


In the Media

Mark Littlewood quoted by Conservative Home

In the Media

Mark Littlewood quoted by the Daily Mail

Responding to the Chancellor’s Spending Review, Mark Littlewood, Director General at the free-market think tank the Institute of Economic Affairs, said: 

“The Chancellor’s diagnosis was correct – and it is encouraging that he grasps the scale of the problem. The eye of the economic storm has yet to hit. The Covid contraction is more than double that of the Great Depression in 1931. Five years from now our economy will be smaller than it was at the start of 2020.

“If the diagnosis is good, the medicine is inadequate. ‘No return to austerity’ is a good slogan, but austerity there will be – either in the public or the private sector. It is just a question of when, and the longer the delay the more austere it will be.

“While today was a Spending Review rather than a Budget, the Chancellor must swiftly turn his attention to mapping out a path to recovery. This will involve creating a better tax and regulatory environment, so businesses can bounce back and thrive.”

Responding to the additional spending announced to support jobs, Professor Len Shackleton, IEA Editorial and Research Fellow, said: 

“Freezing public sector pay and cutting back the Foreign Aid budget, though controversial, make sense in the current climate.

“But plans for extra infrastructure spending and boosts to the NHS, defence and education are very vague.

“Just employing more people is not a justification in itself: all infrastructure spending has to be justified in gains to the general public. In any case, infrastructure plans take many months or years to feed through into substantial extra employment.

“As for the job creation scheme, support for apprentices, and extra work coaches – these are retro policies drawn from dusty files last seen in the 1980s. They may have some effect in boosting employment, but past experience of programmes like this suggest that their overall impact will be marginal.

“Recovery from the recessions of the 1980s and 90s was not the result of extra government spending, but was rather associated with deregulation and freeing up markets. There was no sign of this in today’s announcement. Government intervention, however justified by health concerns, has created the current economic situation; the answer is not yet more intervention, but rather to allow businesses maximum freedom to reorient and rebuild.”

Responding to the cut in the UK’s foreign aid budget from 0.7% to 0.5% of Gross National Income (GNI), IEA Academic and Research Director Professor Syed Kamall, said:

“During these difficult times, it is understandable that foreign aid spending should be reviewed and determined by affordability and effectiveness rather than an arbitrary target.

“Most would agree that aid plays an important role in short-term disaster relief, but focusing aid in a more direct way, and encouraging more non-state assistance, would be far preferable to the existing top-down approach.

“Wasteful schemes, such as the £44.6m of taxpayers’’money spent in recent years on ‘lifestyle’ projects, including anti-obesity programmes in India, regrettably give the whole concept of foreign aid a bad name.

“We also shouldn’t forget other ways to help the world’s poor, such as lowering trade barriers to entrepreneurs from less developed countries, which enables them to create jobs and prosperity in their local communities.

“Well managed migration schemes also allow workers to send remittances to families and friends in poorer countries. Studies have shown that remittances can amount to more than three times the amount of official development assistance (ODA) and foreign direct investment (FDI) combined.”

Notes to editors

For media enquiries, please contact Emily Carver, Head of Media, on 07715942731 or [email protected].

IEA spokespeople are available for further comment and interview.

For further IEA reading on job creation click here.

For further IEA reading on foreign aid click here.

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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