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Institute of Economic Affairs’ response to Budget 2016

A slow, steady, rather unimaginative budget

Commenting on the Chancellor’s Budget, Mark Littlewood, Director General of the Institute of Economic Affairs, said:

“This was a slow, steady, rather unimaginative budget, but at least the Chancellor hasn’t thrown out his target of a Budget surplus for 2020, even if he has almost no margin for error in hitting that target.

Reforms to the tax system

“There were good signs for earners and enterprise in this Budget. The increase in the 40p threshold of income tax will be welcome relief for many middle-earners, whilst the substantial cuts to Capital Gains Tax will increase activity and may well pay for themselves in terms of increased revenue. The old top rate of 28% was actually losing the government income - high CGT rates damage economic growth by encouraging individuals to hold on to assets that would be better off under different ownership.

“Whilst the cut in the headline rate of corporation tax will be celebrated, a number of the reforms to finance it will add to the complexity of the tax system. Likewise, whilst the extension of business rate relief lowers the formal business rate tax bill for companies, the extent to which businesses actually benefit depends on the extent to which landowners increase rents given this will likely boost land values.”

Sugar levy

“It is astonishing that the Chancellor has announced a tax on sugary drinks when there is no evidence from anywhere in the world that such taxes have the slightest effect on obesity. Whether dressed up as a direct tax or a levy on industry, the effect will be that the government will be picking the pockets of the poor for no benefit.”

Public finances and spending

“It’s bizarre to set out fiscal rules to impose discipline on the public finances and then to flout them. In this Parliament, the Chancellor has now breached both his welfare cap and now the pledge to have net debt falling as a proportion of GDP every year.

“The only way he is still able to meet his main target of hitting a surplus by the end of the Parliament is through back-loading many unspecified spending cuts and tax avoidance clampdowns with hugely uncertain revenue effects. Far from ‘acting now to not pay later’, this is deferring consolidation and hoping for the best.”          

Professor Philip Booth, Academic and Research Director, said:

Pensions

“In a tax and savings system desperately crying out for simplification, the Chancellor has introduced yet more complexity. The new “lifetime ISA” will operate under rules completely different from those applying to ISAs and personal pensions and, for many, will effectively act as a state subsidy for the purpose of buying a house.

“This subsidy will be a transfer from one-group of hard-pressed taxpayers to another group of people who can afford to save, to buy a house and who have the ability to work their way round this ever-more complex system. The measure smacks of political opportunism and is certainly not good tax policy.”

Education

“It’s unclear why education reform falls within the remit of the Budget, which should focus on simple tax and spending changes.  It’s a positive move to have less local authority power provided there are protections against central government interference - the government could effectively change the nature of all schools in one go without any serious opposition. Education reform should focus on giving parents autonomy and effective choice and not re-arranging a system that provides almost no choice for the vast majority of parents.”

Notes to Editors:

To arrange an interview, please contact Stephanie Lis, Director of Communications: slis@iea.org.uk or 07766 221 268.

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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