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IEA - Fiddly Budget has abandoned deficit elimination & leaves tax burden at near 50 year high

IEA reacts to the Autumn Budget Announcements 2018

“From education to business rate relief, this Budget was marked with far too many fiddly announcements. When – in word count – one of your lengthiest announcements is about public lavatories, this should be taken as a sign that your vision for the country’s finances has been badly prioritised.

“It’s laudable that the Chancellor has stuck to his commitment to raise the personal allowance – putting more taxpayer money back into their own pockets – but in many respects he is simply making up for lost time. If wages continue to outpace inflation, it won’t be long before more and more workers are dragged back into paying income tax at both the basic and higher rate.

“More broadly, it was a Budget littered with spending commitments across the board. In an attempt to signal the ‘end of austerity’, it appears this government has given up on deficit elimination.

“It will be more than a quarter of a century since the government last balanced the books; yet despite the deficit still sitting at £25.5bn per annum and the cost of servicing that debt ever on the rise, the Chancellor’s rhetoric suggests this is the new normal. Fiscal responsibility is being sidelined, giving way to short-term giveaways and unaffordable pledges.

“The UK needs policies that will accelerate recovery – lowering taxation and cutting regulation – to stand us in good stead as we leave the European Union. Announcing new taxes on online businesses will hamper investment, dissuade start-ups and inevitably increase prices for consumers. This is not the way to show the UK is open and ready for the post-Brexit world.”

On the extra £20bn of funding for the NHS, the IEA’s Associate Director Kate Andrews said: 

“Despite promises of Government spending reviews and ten-year plans laid out by the National Health Service, the public remains in the dark about how the substantial £20bn increase to the healthcare system will be funded.

“Families are already paying, on average, thousands of pounds per year to access NHS treatment. The British public should not be expected to pay a penny more to cover up for a fundamentally broken healthcare system.

“Even if the Chancellor is able to rely on increased growth – or the elusive ‘deal dividend’ – to further fund the NHS, it would still be classified as the sick system of Europe, ranking in the bottom third of international comparisons for health system performance.

“Increased funding for the NHS needs to go hand-in-hand with a redesign of the system, which currently prioritises bureaucrats over patients. Next year’s reveal of plans for reform may contain the silver bullets needed to bring in the NHS into the 21st century, but so far, no rhetoric or policies from the Chancellor suggest the necessary modifications are on their way.”

On the proposed digital services tax, the IEA’s Chief Economist Julian Jessop said: 

“This is a crude way to address the challenges posed by the business models of tech companies. It cannot distinguish between firms that already pay plenty of tax and those that do not. And the idea that it would apply only to ‘profitable’ companies is odd given it is effectively a turnover tax. Why not let corporation tax do its job? 

“This kind of sector-specific intervention could be damaging as it usually deters new entrants from the market, and it will be consumers who will probably end up with the bill, whether through higher prices or lower investment and reduced innovation.”

On Stamp Duty relief, Mark Littlewood said:

“By giving Stamp Duty relief to multiple groups, the Chancellor has all but admitted that Stamp Duty is a distortive tax that contributes to the UK’s housing crisis. 

“Britain’s extortionate housing market is broken enough already without further penalising homeowners by charging them thousands of pounds unless they stay put in their current property. 

“Stamp Duty not a tax on wealthy property owners. It is essentially a tax on moving home. The Chancellor should stop tinkering at the edges, or favouring certain groups over others, and scrap the nonsensical tax policy all together.”

Notes to editors:

Media Enquiries

The IEA have a range of spokespeople available for interviews around the Budget.

For media enquiries please contact Nerissa Chesterfield, Head of Communications: nchesterfield@iea.org.uk, 07791 390 268 | 020 7799 8920

Budget Briefing 2018

The IEA briefing on the upcoming Budget called for the Chancellor to resist a ramp up in public spending and recommit instead to reducing the burden of tax and regulation.

Written by the IEA’s Chief Economist Julian Jessop, the briefing includes his ‘Wishlist’ of policy announcements. Download the briefing here.

Further IEA Reading:

Download IEA report Taxation, Spending, and Economic Growth here.
Download IEA report Sharper Axes, Lower Taxes here
Download IEA blog Which Tax Would you Axe? Part 1 here.
Download IEA blog Which Tax Would you Axe? Part 2 here.

About the IEA

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 and seeks to provide analysis in order to improve the public understanding of economics.

The IEA is a registered educational charity and independent of all political parties

Original article link: https://iea.org.uk/media/fiddly-budget-has-abandoned-deficit-elimination-leaves-tax-burden-at-near-50-year-high/

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