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The Adam Smith Institute’s reaction to the 2016 Budget

A spokesmen for the Adam Smith Institute commented on yesterday’s Budget.

“The budget was disappointing. Growth forecasts have been lowered, and the Chancellor’s failure to deliver any kind of growth agenda in the last Parliament has left the British economy vulnerable to a global economic slowdown. Even more worryingly, he doesn’t seem to care. There was nothing major in this budget to boost investment, and far from simplifying the tax system the Chancellor announced a raft of new levies that will make it even more complicated and wasteful.

“Mr Osborne seems so firmly focused on the politics of the budget that he seems to have ignored the economics of it altogether.” – Sam Bowman, Executive Director

Mr Osborne sounded a lot like Gordon Brown yesterday.

“Nigel Lawson’s budgets were models of clear-sighted vision.  In every budget he cut taxes, simplified them, and abolished at least one altogether.  A George Osborne budget seems more like one of Gordon Brown’s, a patchwork quilt of little measures with no clear pattern to it.” – Madsen Pirie, President

The Chancellor’s deficit plan is in tatters

“Mr Osborne’s deficit reduction plans for this Parliament always seemed improbable but lowered growth forecasts make this plain to see. At the current rate of cuts, he will now need to find £31bn of cuts or tax rises in the year 2019 alone to deliver his surplus. This is highly unlikely and it seems almost certain that he will end up breaking all three of his own fiscal rules. In all likelihood he does not expect to be in the job by then and doesn’t mind handing the problem to someone else.” – Sam Bowman, Executive Director

Cutting business rates for small businesses is a bad idea – and could Italify British businesses

“Business rates are mostly a tax on landowners, not on firms. Even though firms write the cheques, when business rates are cut, rents rise in proportion, so firms are no better off, but landowners are. Reducing rates for small businesses only makes this problem even worse. Not only will rents rise across the board for all firms, big and small, there now is a large distortion in favour of smaller firms present in the rates system, akin to rules in slow-growing Eurozone states like France and Italy. Smaller firms are generally less productive than large firms, and by creating a large distortion in favour of inefficient small businesses the Chancellor is risking the “Italification” of British business.” – Sam Bowman, Executive Director

Corporation tax cuts are modest good news

“Corporation tax is—as George Osborne said—one of our least efficient taxes, destroying huge amounts of economic activity for each pound it raises in revenue. Cutting it from its current rate to 17% by the end of the parliament will put upwards pressure on productive investment and on workers wages, though the move is small. Devolving the tax to Northern Ireland is also very welcome—currently there is a very strong incentive for firms to site themselves just across the border in the Republic of Ireland, purely in order to pay lower corporation tax. Equal corporation tax on either sides of the border would bring the UK more revenue, and increase efficiency by reducing arbitrary distortions on where businesses should locate.” – Ben Southwood, Head of Research

The soft drinks tax is the thin end of the wedge

“A tax on sugary soft drinks is the first step on the road to fat taxes and sugar taxes more generally. It makes little sense to tax sugary drinks on their own, rather than sugar more generally – a couple of Mars bars are just as bad as a bottle of Coke – but the Chancellor probably reckons that the public won’t care if he only targets soft drinks. Once the tax is in place, he will follow the lead of other ‘sin taxes’ and raise it higher and higher, and impose it on more and more things. The costs of this tax will likely be passed on to consumers in the form of higher prices, so it will be regressive.” – Sam Bowman, Executive Director

Capital gains tax cuts are a return to normal

“We should not exaggerate the chancellor’s achievement with his capital gains tax cut, as he has only returned the main rate to the level enjoyed under New Labour, but it is nevertheless a step in the right direction. Reducing the returns to investment reduces investment, it’s as simple as that, and most economists therefore oppose capital taxation. However, though the overall move is a step in the right direction, it also adds layers of complexity: lower rate taxpayers and entrepreneurs continue to pay lower rates, while housing and carried interest remains taxed at the old rate. Tax preferences for certain sorts of investment work against market signals, pushing cash towards areas it can do less good in.” – Ben Southwood, Head of Research

Raising the personal allowance is a good thing, but National Insurance thresholds have been left alone again

“The Adam Smith Institute has campaigned for years to take the lowest-paid workers out of tax, and progress in raising the personal allowance is to be welcomed. But there has been no movement in National Insurance contributions, which are an income tax in all but name and kick in at much lower income levels than income tax now does – at just £8,060 per year. The Chancellor should target his income tax cuts on the poor and focus on raising National Insurance thresholds.” – Sam Bowman, Executive Director

The education changes will waste children’s time and taxpayers’ money

“Announcing large, headline-grabbing education policy changes that were largely unrelated to funding in the budget would have been forgivable if there was evidence suggesting these moves would actually help much. But forcing kids to learn maths until 18, and stay in school until nearly 5pm, is going to cause lots of pain for little gain—Danish and Chinese evidence suggests that we’ll see few if any benefits. Switching to an all-academy system, on the other hand, is probably a good move.” – Ben Southwood, Head of Research

Notes to Editors:

For further comments or to arrange an interview, contact Sam Bowman at | 07596 826323.

The Adam Smith Institute is a free market, libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.

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