Post Budget Briefing 2011Post Budget Briefing 2011

Philip BoothEditorial Director

The Institute for Economic Affairs

Why liberalisation?• Government’s plans assume 2.6% real output growth• If real output grows at (say) 1.5%, debt reduction will

be derailed• Government has not allowed for supply-side shocks in

its growth projection (e.g. higher taxes, regulation, oil prices etc)

• Output growth has been below trend growth rate• “Boom” and subsequent “bust” requires reallocation of

economic resources• We need to ensure people made unemployed by

government can be re-employed by the private sector – rapidly

Importance of liberalisation?• Trend growth rate may have fallen by nearly 1% due to

increases in government spending, taxation and regulation

• Youth unemployment at record levels• The prize is great – lower unemployment, faster deficit

reduction, higher tax take at lower rates, higher real earnings growth

The rhetoric

• 100 pages being cut out of the tax code in a process of tax simplification

• Employment regulations costing £350 million being dropped• Moratorium on new business regulation for businesses with fewer

than 10 employees for three years• Liberalisation of planning; house deposit scheme• Raising of tax thresholds• Reduction in corporation tax

The reality

• The tax code will be cut by about 1% – and new pages will be added. • The tax measures are trivial (e.g. angostura bitters relief and a host of

out-of-date reliefs)• Regulations imposed since 1998 alone cost business £90billion –

£350million is 0.4% of this• No rolling back of regulation for small businesses – just exemption

from new regulation• Planning only liberalised for areas in which building is already

allowed• Future tax thresholds to be under-indexed but indirect taxes still to

go up with RPI

Sajid Javid MPMember of Parliament for Bromsgrove

Mike DenhamResearch Fellow

The TaxPayers’ Alliance

Cumulative increase in borrowing

and spending,

2011-12 to 2015-16,£ billion

10 year gilts vs CPI inflation, 2000 to 2011, ONS and Bank of England

Debt interest plus public sector pensions plus state pensions plus PFI, £ billion

Matthew SinclairDirector

The TaxPayers’ Alliance

Band D Council Tax adjusted by GDP deflator

Fiscal crunch: the burden facing households over the next decade

Treasury energy price expectations