· Even though growth has picked up significantly in the last three quarters, the UK’s economic and fiscal challenges remain much the same.
· A significant amount of fiscal consolidation will still be needed in the next Parliament, and the general election is likely to create considerable uncertainty over the likelihood of further tax rises and the medium-§term commitment to deficit reduction.
· Structural factors, such as new regulation in the financial and energy sectors, the increase in the size of the state, high levels of debt, demographic trends, and the reversal of huge pre-crisis credit growth are likely to mean that we are unlikely to see significant “catch-up” growth in the medium-term relative to levels of GDP extrapolated from a pre-crisis trend line.
· In our view, the best means of closing the deficit and creating the conditions for economic prosperity would be a significant reduction in government expenditure, reviewing not just the scale of state spending but also the scope of government, and allowing a significant reduction in taxation. Our publication, Sharper Axes, Lower Taxes outlined how this could be achieved.
· Our more pragmatic, shorter-term suggestions for this Budget highlight policies which meet declared government aims: to reduce the budget deficit, to make the tax system more coherent, to reduce the burden of regulation, and to improve the framework of government for long-term fiscal responsibility.
· Free bus travel, free TV licences and the winter fuel allowance should all be abolished. This would save around £4 billion per year.
· Means-tested pensioner benefits should be increased by 1% per year for the next three years, in line with government policy for means-tested working age benefits.
· Legislation should be introduced requiring thresholds for inheritance tax, stamp duty and all income tax thresholds to be increased annually by the higher of wage inflation and retail price inflation.
· A wealth tax or mansion tax should be ruled out. Stamp duty should be reformed away from the current slab structure, and eventually abolished. Council tax for homes worth £1 million or more should be replaced with a tax on imputed rent. Net revenues from the tax on imputed rent should be used to reduce stamp duty.
· An exemption to employment law should be introduced such that new firms and small businesses are able to treat a certain number of employees as self-employed. Mandatory sunrise clauses between the announcement of a new rule or regulation and a company’s liability to comply with it should be introduced.
· The current all-encompassing Budgets and Autumn Statements should be abolished and replaced with a short statement outlining the changes to tax rates, allowances and borrowing required to meet public spending obligations. Other announcements should fall under the auspices of the relevant departments.
To read the press release, click here.