A public opinion poll on behalf of the Centre for Policy Studies.
Date Published: 12 Oct 2011
Categories: Economy | Politics | Public and communities | UK
Adrenalin Now – Funded, popular tax cuts to boost the economy
Given limited room for manoeuvre on both fiscal and monetary policy, funded tax cuts and deregulation are urgently required to kick-start the economy. In ‘Adrenalin Now,’ Ryan Bourne argues the growth of the past ten years has been driven by both public and private debt, and that now these taps have been tightened, the UK must boost its underlying private sector growth rate by cutting the cost of employment, attracting inward investment and easing the burden on families.
Laying out the options for Government attempts to stimulate growth, Bourne:
• Dismisses expansionary fiscal policy due to both the market risk, and an IMF study which highlights that stimulus spending is futile for countries with high debt to GDP ratios
• States that monetary policy could have a further role, provided an effective monetary transmission mechanism is identified
• Highlights how uncompetitive the UK has become on taxation, regulation and the soundness of the banking system
Whilst welcoming some Government achievements, he argues that the Coalition must go much further – now. By beginning reform to the pensions system, and trimming the international aid budget, he lays out over £14 billion of savings that could be used for targeted tax cuts. The savings are: abolishing the differential rates of pension tax relief for higher rate payers (£7 bn), abolishing contracting out of S2P (£3.5 bn), cutting international aid to 2010/11 spending (£1.3 bn) and ending the 25% tax-free lump sum entitlement from pensions (£2.5 bn).
These funds could be used for radical effect:
• To reduce the main employer NICs rate to 12%, and granting NIC holidays to small firms (0 to 4 employees) for next 4 employees for 2 years
• To cut the main rate of Corporation Tax by 4% for 2012/13 to 21%
• To scrap the 50p income tax rates
• To announce plans for stamp duty on share transactions to be abolished in two years’ time
• To increase the income tax personal allowance by £500 more than planned to £8605 for 2012/13
Polling undertaken by ComRes on behalf of the CPS suggests that these measures would be very popular with the public. Almost half (47%) of all people say that they would prefer the Government used targeted tax cuts to try to stimulate economic growth, compared to a third (34%) who would prefer an increase in public spending, whilst 69% and 67% of those interviewed supported reducing employer NICs and increasing the personal income tax allowance, respectively. Though opinion on the means of funding these tax cuts was more mixed, individuals generally reacted with positive backing for the proposals when asked to agree/disagree with a series of statements. For example,
• 22% agree that the 50p income tax rate for higher earners should be removed, compared to 56% who disagree. However, 37% agree to the 50p income tax rate for higher earners being removed if the personal allowance was increased by an additional £500 a year for everyone, compared to 34% who disagree.
• Three fifths (61%) of people agree that cutting the cost of employing people is more likely to stimulate economic growth than offering higher rate pension tax relief.
• 43% agree that abolishing the higher rate tax relief for pensions would show that the Government is committed to sharing out the pain of the economic downturn fairly, while 23% disagree and 34% say they don’t know.
• A large majority (62%) disagree with the statement ‘I would rather see the UK’s international aid budget protected than the Government reducing taxes,’ compared with 15% who do agree.
Full tables of the polling results can be found here.
Bourne concludes that these tax cuts, alongside more enhanced efforts to deregulate and improving access to credit, could help kick-start the economy and should be seriously considered by the Chancellor.
A full copy of the pamphlet can be downloaded from here.
He commented, “The current low growth rates call into question the plausibility of the plans to eliminate the structural deficit in this Parliament. With monetary policy near exhaustion and fiscal policy constrained, easing the tax burden and deregulating our economy are the best means of kick-starting our economy. The nature of current crises means these tax cuts must be funded, and beginning to reform pensions whilst trimming international aid are the clearest areas where savings could be readily made.”
Tim Knox, Director of the CPS, comments: “Today’s low growth rates threaten the Coalition’s ambitions to eliminate the deficit . Fast action is needed now. Cutting tax on enterprise will give the best boost to the economy.”
ComRes interviewed 2024 GB adults online between 23rd and 25th September 2011. Data were weighted to be demographically representative of all GB adults. ComRes is a member of the British Polling Council and abides by its rules.