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George Osborne's dynamic plan

By Paul Goodman
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I don't know whether George Osborne should or shouldn't have slapped VAT on hot sausage rolls.  But I do know that reversing his decision would do nothing to fire economic growth.

Unlike a plan he has made which resembles one I've floated.

Osborne has ordered the Treasury to do new work into the dynamic effects of tax cuts.

I suggested before the budget that he should so this, citing HMRC's investigation into the effects of the 50p rate.  He said in the budget that it would be cut to 45p.

He announced that study in last year's budget.

And I suggested before that that he should do so, citing the Treasury's investigation into the effects of capital gains tax rates.

I don't believe that the Chancellor has acted at my behest.  After all, the idea is scarcely original.

But although he should have undertaken the probe after his second budget - if not after his first - he should be congratulated for doing so.

Osborne said yesterday that he doesn't regard the 45p rate as temporary.  This sounds like bad news.  But this is where where the new study comes in.

By making a judgement about where the Laffer effect begins and ends, it could pave the way for cuts in the 45p rate and the 24p corporation tax rate - and taxes more broadly.

The Treasury already does some dynamic modelling, but the Chancellor wants its efforts to be intensified.

If we boo when Osborne gets it wrong - as he did over the presentation of freezing pensioners' tax allowances - we should also cheer when he gets it right.  On this, he has.


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