The budget should announce an investigation of the dynamic effects of tax cuts

On July 13 2006, the following exchange took place on this website as part of a question-and-answer session with George Osborne.

"William Norton: "Do you support the call from the TaxPayers' Alliance to establish a Dynamic Analysis Division within HM Treasury to investigate the positive effect on incentives and growth of a reduction in the tax burden ?"

"George Osborne: The TaxPayers' Alliance are right to highlight the issue of the dynamic effects of tax cuts. The current Treasury model assumes that any change in the level of taxation will lead to an exactly equivalent change in revenue. They fail to take into account the broader economic consequences of tax changes. It is difficult to know exactly what those dynamic effects are – how big they are, and when they impact on tax revenues. So I welcome the TaxPayers’ Alliance’s interesting idea, and I look forward to hearing Gordon Brown's reply."

Tim will set tomorrow his ten benchmarks for judging the emergency budget. I'll restrict myself to one.

Since the man who's now Chancellor said that the TaxPayers Alliance (see here) was "right" and that its ideas were "welcome", I hope that the budget will announce that a Treasury division's to be set up to investigate the dynamic effects of tax cuts, and report within six months.

Paul Goodman