Think Tanks


26 Jun 2013 15:03:47

Rolling blog of think tank reaction to the Spending Review

The TaxPayers' Alliance

Taxpayers'_Alliance_logoMatthew Sinclair, Chief Executive of the TaxPayers' Alliance, said:

"The Chancellor has announced some welcome savings which will ease the pressure on taxpayers now and in the future, including some sensible changes to the welfare system and an attempt to end the absurdity of pensioners on the Costa del Sol getting the Winter Fuel Payment. Tens of billions of pounds are still being wasted by bloated bureaucracies each year, so there is plenty of room for further cuts. Unfortunately Mr Osborne is still boasting about squandering enormous amounts on foreign aid and vanity projects in the energy sector, while other developed economies are showing more restraint.

"The best news was on public sector pay. At the moment public sector staff get more generous pay than their counterparts in the private sector and gold-plated pensions. Mr Osborne has taken an important step towards delivering a fairer deal, although he is still planning to increase the pay of bureaucrats already receiving more than the private sector workers who pick up the bill.”

Institute of Directors

IoD LogoCommenting on the Spending Review, Graeme Leach, Chief Economist at the Institute of Directors, said:

“The Spending Review leaves business feeling like Oliver Twist. More please, Chancellor. Please could you go further and faster with spending restraint? Please could you shift even more expenditure from current spending towards infrastructure? Please could you widen the welfare cap to include pensions? But please could you also do less ring-fencing of spending in departments such as the NHS.”

“The Chancellor made many welcome announcements in the Spending Review, including the 1% limit to public sector pay growth and the intention to curtail automatic pay progression - regardless of performance - within the public sector. This, combined with previous policies aimed at decentralising public sector pay,  is creating a quiet revolution in public services. Taken together with the commitment to accelerate the free schools programme, the Spending Review had a radical supply-side dash.”

Confederation of British Industry

John Cridland, CBI Director-General, said:

CBI Logo"The Chancellor has carefully walked a tightrope of protecting growth, while making sizeable savings to pay down the debt. Infrastructure is rightly singled out as the most effective engine for growth, as we urged. While the Government talks a good game on infrastructure we’ve seen too little delivery on the ground so far. It is critical we see a real pipeline of projects announced tomorrow, so investors know what schemes are going ahead, where and when."

“Other pro-growth areas including science, innovation, skills and exports have also been shielded from cuts. The £185 million boost for the Technology Strategy Board - a crucial anchor for innovation - is particularly welcome. With stretched government finances it is tough but necessary to target automatic progression pay in the public sector. It is encouraging to see that Government will have greater control of the welfare budget through the new cap."

“The next big challenge to address is the issue of ring-fencing to ensure that efficiency flows across all parts of the public sector.”

5 Jan 2013 12:26:09

The Centre for Social Justice warns that the Government’s child benefit plans are “another blow to marriage”

By Peter Hoskin
Follow Peter on Twitter

With the Government’s “High Income Child Benefit charge” coming into effect on Monday, the past week has witnessed a flurry of criticism of the policy. My former colleague Jonathan Jones wrote a useful summary of those criticisms yesterday, which ticked off things like high marginal tax rates and the extra complexity that is being wired into the benefits system.

But there’s another criticism, and one that the Centre for Social Justice is highlighting today: the effect that the Child Benefit changes could have on marriage. Christian Guy, the managing director of the CSJ, puts it thus:

“The new rules will mean that married couples where one earns over £50,000 pa will be unable to avoid losing some or all of their child benefit. Meanwhile similar couples who are cohabiting will face unenviable choices: a severe financial penalty if they marry or breaking the law if they deny their relationship status.

This creates a potential ‘marriage penalty’, despite evidence showing how crucial marriage is to stable families and children. Research illustrates that break-up rates are three times higher for couples who cohabit compared with those who marry.”

It all comes down to keeping secrets from the taxman. As Christian Guy suggests, unmarried couples (where one partner earns over £50,000, etc., etc.) have one obvious way to avoid being stung by the Child Benefit policy: they don’t admit to being a couple. And if they don’t want to admit to being a couple, then they may not want to get married. Money could, at least theoretically, trump wedding bells.

In truth, it’s hard to know how many of the estimated 1.2 million families affected by the Child Benefit policy will choose that route. Perhaps it will only be a handful, or even none. But that will do little to salve the concerns of those Tories who already feel the Government isn’t doing enough to promote marriage in the tax system. No doubt, there will now be even more pressure on George Osborne to produce a tonic for them in the next Budget.

> READ: Paul's post from yesterday, on why George Osborne should say that the child benefit restriction is temporary

27 Aug 2012 06:36:41

New Centre for Policy Studies report shows widespread public misunderstanding of economic issues faced by Britain

By Matthew Barrett
Follow Matthew on Twitter.

CPSA poll conducted by ComRes for the Centre for Policy Studies has found that widespread ignorance of our economic situation exists amongst the public.

The poll found that:

  • 47% of British adults think the Coalition is planning to reduce the national debt by around £600 billion between 2010 and the end of this Parliament in 2015
  • 12% said the Coalition was planning neither to reduce nor increase the national debt
  • 32% said they did not know
  • But only 10% were right in saying that the Coalition Government is planning to increase the national debt by around £600 billion by the end of this Parliament

The results come as part of an analysis of the public's understanding of the Coalition’s economic policies, "A Distorted Debate: the need for clarity on Debt, Deficit and Coalition Aims", written by Ryan Bourne and Tim Knox, which is published today.

The report contrasts the aim of the Coalition - to eliminate the current structural deficit by the end of this Parliament and stem the increase in public debt as a proportion of GDP - with the reality: the cyclically-adjusted current deficit had only fallen by 13% by the end of 2011/12, and the great majority of the reduction in the deficit has come from cuts to investment spending and tax increases, not from current spending cuts. The report's authors also show that only 6% of the planned current spending contraction has so far been implemented.

Continue reading "New Centre for Policy Studies report shows widespread public misunderstanding of economic issues faced by Britain" »

8 Aug 2012 17:01:46

The IEA criticises the Coalition for failing to reduce the size of government and calls for tax cuts

By Matthew Barrett
Follow Matthew on Twitter.

This morning's growth forecast figures were disappointing. David Cameron, speaking to LBC radio, said:

"Obviously the growth forecasts are a matter for the bank of England, but they’ve all been coming in line with the reality, which has frankly been disappointing. I think what’s happening is there’s a rebalancing of the British economy taking place. ... yes, it’s tough, yes the growth figures have been disappointing, but there’s a rebalancing of the economy taking place – more enterprise, more small businesses, more start-up businesses that are going to be the engine of the future, and we just have to roll up our sleeves and work really hard to achieve this economic rebalancing that has to happen."

IEAThe Institute of Economic Affairs' Communications Director, Ruth Porter, has released a statement calling for the state to get out of the way, and allow tax cuts and labour market liberalisation:

"It’s hardly surprising the economy is not recovering when the government has failed to reduce public spending significantly. Focusing on increasing private sector investment and productivity is the key. Heavy regulation and high taxes will inevitably put businesses off investing."

Continue reading "The IEA criticises the Coalition for failing to reduce the size of government and calls for tax cuts" »

1 Feb 2012 14:53:44

Tim Knox: A substantial Corporation Tax cut would send a bold pro-growth, pro-enterprise message

Tim Knox is Director of the Centre for Policy Studies which today publishes How to cut Corporation Tax (pdf) by David Martin.

We have heard rather a lot recently about how we must not tolerate “high rewards for failure”. But there is a logical corollary to that particular line: that we should be equally vehement about not imposing high penalties on success. And that is what the tax system does, not just on those individuals who pay higher rate taxes but also on business. For Corporation Tax – a tax on business profits – is effectively a tax that is only paid by successful businesses. It is money taken by the state from highly productive enterprises, money that could otherwise have been reinvested in new ventures. And it is money that is then consumed by the state, notorious for its low level of productivity.

In this way, the state penalises the only organisations which can get us out of the hole that we are in. For growth will only come from business: the state and the consumer are both far too indebted. That is why, as leading tax expert David Martin argues in his Centre for Policy Studies paper published today, George Osborne should announce in his March Budget an immediate cut in the main rate of Corporation Tax from its current level of 26% to 20%. At the same time, he could also announce his intention to reduce it even further – to 15% or even 10% once the appropriate anti-avoidance measures are in place.

Such a move would have numerous benefits:

  • It would boost business confidence, encourage new investment by businesses (as it would improve net returns) and would send a strong signal that the Coalition is taking the bold supply-side measures necessary to restore growth.
  • It would immediately fulfil the Coalition pledge to “create the most competitive corporate tax regime in the G20”. Until 2005, UK rates of Corporation Tax were lower than the OECD average. Since then—despite the Coalition’s efforts so far – the UK has fallen behind.
  • It would present an opportunity for a major simplification of the tax system. If the tax base was defined as business profits, then we could sweep away the separate rules and calculations for different sources of income, and for capital gains, and for capital allowances; and abolish all the complex rules for aggregating the results of these calculations, and for how profits and losses can be offset.
  • It could have a significant “wealth effect”. One of the key measures of assessing the value of a company is the P/E multiple (the price earnings multiple). If earnings per share are enhanced because of a lower tax charge, the value of equities will tend to rise over time (assuming an unchanged P/E multiple). Higher share prices benefit most corporate pension funds (particularly through reducing the actuarial deficit), life assurance companies, other institutional investors and unit and investment trusts which harness the savings of millions of people. Private individuals thereby achieve a higher valuation of their equity investments through rising share prices which potentially enhance consumer confidence. That in turn adds to the buoyancy of the economy.
  • It could also heighten the impact of any further Quantitative Easing – or possibly even reduce the need for more QE. The use of QE by both the Bank of England and the Fed has tended to result in higher equity prices, thereby enhancing consumer confidence through this “wealth effect”, a consequence that has been publicly welcomed by both central banks. A reduction in Corporation Tax should achieve precisely the same effect. Moreover, that effect might well be leveraged by an announcement of an intention to reduce the rate further as it would result in an upward re-rating of P/E multiples caused by greater investor confidence in the regime of lower Corporate Tax rates.

Continue reading "Tim Knox: A substantial Corporation Tax cut would send a bold pro-growth, pro-enterprise message" »

25 Aug 2011 07:13:04

New TaxPayers' Alliance report finds £27.4 billion in taxes goes uncollected

By Matthew Barrett
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TAXPAYERS ALLIANCEA new report released today by the TaxPayers' Alliance (TPA) for the 2020 Tax Commission (a joint project by the TPA and Institute of Directors) shows that Her Majesty’s Revenue and Customs (HMRC) has given up on collecting £27.4billion in tax revenue over the last five years.

The TPA report, "How the taxman loses billions every year" (which is available to read here in pdf format), suggests that tax simplification would help avoid errors of such scale - and would help reduce the deficit more quickly. 

HMRC gives up trying to collect billions in tax in the form of remissions and write-offs every year. The report describes remissions and write-offs:

  • "Remissions are debts capable of recovery but HMRC has decided not to pursue the liability, for example, on the grounds of value for money or official error"
  • "Write-offs are debts that are considered to be irrecoverable because there is no practical means for pursuing the liability (e.g. after bankruptcies)"

Continue reading "New TaxPayers' Alliance report finds £27.4 billion in taxes goes uncollected" »

28 Jul 2011 08:46:05

Jonathan Isaby joins The TaxPayers' Alliance as Political Director

By Matthew Barrett
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ISABY JONATHANJonathan Isaby, our former co-editor, will be the TaxPayers' Alliance's first ever Political Director. 

Jonathan's role will be centred on building links with MPs, MEPs and Ministers, in order for the TPA to better represent taxpayers in Westminster and Brussels. He will focus on representing the work of the 2020 Tax Commission - which seeks to simplify and reduce the British tax system - as well as building alliances and joint campaigns with other groups representing taxpayers across Europe, in light of the €urozone crisis. 

Continue reading "Jonathan Isaby joins The TaxPayers' Alliance as Political Director" »

4 Jan 2011 14:46:48

Free market think tanks unite against increase in VAT

Tim Montgomerie

Four of London's leading think tanks have all attacked today's increase in VAT to 20%; an increase that George Osborne intends to be a permanent rather than emergency fixture.

Screen shot 2011-01-04 at 12.20.14 Leading the charge has been Matthew Sinclair of the TaxPapers' Alliance. Speaking to the BBC earlier he pointed out that David Cameron had broken a promise not to raise VAT. The Lib Dems even ran a poster campaign against higher VAT (remember this?).  Matt Sinclair said taxes were high enough in Britain and more should have been done to cut spending.

Philip Booth of the Institute of Economic Affairs sets out the alternatives to higher VAT in a powerful piece on Coffee House:

"The NHS has been ring-fenced, even though it has experienced huge budget increases and has a shocking productivity record. Pricey gimmicks given to pensioners such as the Winter Fuel Allowance, free television licences and free bus travel remain in place, whilst the government has promised to increase state pensions in line with the higher of inflation, earnings or 2.5% - the “triple lock”, as the government calls it. This last profligacy is wholly unnecessary at a time when much of the working population is experiencing real wage reductions. A 2.5% trim of the NHS budget, not increasing the aid budget, the abolition of the pensioners’ gimmicks and not implementing the triple lock would enable the government to cancel the VAT increase with considerable room to spare."

Dalibor Rohac, a research fellow at the Legatum Institute, disputed the idea that a VAT rise was less economically harmful than other alternatives:

“There can be no question about the fact that the British economy would benefit from further downsizing of the public sector, but one can understand how difficult it is implement sizeable spending cuts, especially in the short run. This being said, the Chancellor is mistaken if he believes that a rise in the VAT will have a smaller impact on the economy than a rise in the income tax. For all practical purposes, the VAT and the income tax have the same economic effects and lead to equivalent economic distortions. Even if we were to accept that tax increases were needed, there are alternatives to a VAT hike, which would have a much smaller impact on incentives to work and do business.”

IMG_0428 copy Tom Clougherty of the Adam Smith Institute (which recently calculated that Tax Freedom Day will be three days later this year) argued that the Coalition should be CUTTING tax to stimulate growth and revenues:

“Rather than increasing taxes, government should be looking at making targeted tax cuts to encourage economic growth. Raising the VAT might be the “least worst” option, but it still risks putting a dampner on our economic recovery.”

I have argued against the VAT rise but now regard it as a battle lost and surrender.

7 Feb 2010 08:54:30

CSJ proposes that houses with new granny flats should be exempt from Capital Gains Tax

Within a report about caring for Britain's ageing population the Centre for Social Justice suggests that householders who build a 'granny flat' should be exempt from capital gains tax when they come to sell it.

The Sunday Telegraph reports:

"A family who bought a house for £200,000, built a granny flat for £50,000 and sold the property for £400,000 would normally have to pay CGT of about 18 per cent on a share of the profits, or about £10,000. They would be spared this under the CSJ plan. Mr Duncan Smith's group is also studying plans to exempt granny flats from additional council tax or VAT charges."

23 Nov 2009 10:36:00

Historical lessons on keeping spending under control

Policy Exchange

"Controlling Spending and Government Deficits - Lessons from History and International Experience"(PDF)

Authors: Dr Andrew Lilico, Ed Holmes and Hilba Sameen

Publication date: 23 November 2009

A comprehensive study contrasting historical UK examples when spending was cut during times of financial hardship with the similar experiences of other European countries and Canada. The paper calls for a spending cuts programme to address the dire state of the current UK public finances. However the authors warn that other countries have been better than Britain at implementing public cuts programmes by devolving the process of finding savings down to the government departments in question and is critical of previous centralised cuts programmes undertaken by the UK Government.