CPS Budget Reaction: The Good, The Bad and The Ugly
Tim Knox, Director of the Centre for Policy Studies, said:
“This was a Budget of the Good, the Bad and the Ugly. But the good did not dominate.
The good supply-side reforms included the faster increase in the personal income tax threshold to £10,000 (a policy first advocated by Maurice Saatchi in 'Poor People! Stop Paying Tax!' for the CPS in 2001) and the planned reduction of Corporation Tax to 20%, thereby scrapping the higher rate altogether.
There were some bad initiatives which suggest the Chancellor believes that he still has money to spend or that he can somehow micro-manage the economy: such as the £1bn on childcare subsidies, the £1.3bn Heseltinian industrial policy and the £10,000 loans that employers can offer tax free to pay for items such as season tickets.
But all this comes in the context of the ugly truth that the deficit is still extraordinarily high. The result is that gross debt (under the Maastricht criteria) will have broken through the 100% of GDP barrier in 2015/16.”
Ryan Bourne, Head of Economic Research at the Centre for Policy Studies said:
“The story of this Budget is not the measures contained within it, but the miserable growth and borrowing forecasts which accompany it. Once all the one-off factors are stripped out, underlying borrowing will have fallen by just £1 billion to £120 billion between 2011/12 and 2013/14.
Despite the talk of strong spending control, the Office for Budget Responsibility shows that real spending will fall by just 2.2% between 2011/12 and 2014/15.
Our critique of the Coalition’s deficit plan remains the same: it is reliant on a return to fairly strong sustainable growth in future, but so far the OBR’s forecasts on our medium-term prospects have proven hopelessly optimistic again and again. Whilst there were some welcome supply-side and tax changes today, and an understandable focus on living costs, these were largely dealing with the symptoms of stagnation rather than the root causes.
What we need is an agenda to raise our potential growth rate – reducing the burden of spending and tax, and implementing robust supply-side and pro-competition reforms”.
On the proposed changes to the Bank of England remit Ewen Stewart, Director of Walbrook Economics and CPS author:
“The most significant announcement today was the proposed changes to the Bank of England’s inflation targeting remit. Whilst lip service was paid to maintaining the 2% inflation target, it’s clear Mark Carney will be given significant rope to engage in even more expansionary monetary policy. So far QE, despite being larger as a proportion of GDP than that undertaken in the US, has failed to generate growth. A further loosening risks embedding inflation and sterling weakness.”
On the childcare policy announcements, CPS research fellow Kathy Gyngell said:
“This budget is worse than nothing for the stay at home mother (the single earner couple family). Already grossly penalised in the tax and benefits system for the instinctive and reasonable choice to care for their infants at home, now this couple are meant to subsidise rich working women’s nannies.”