IEA Tax and Spending Poll

A public opinion poll on behalf of the Institute of Economic Affairs.

Date Published: 12 Jul 2011

Categories: Economy | Politics | Public and communities | UK

Description

Opinion poll shows overwhelming support for new IEA plan to cut public spending and slash taxes

 
Under the IEA’s plan government spending would be cut by an additional £215bn a year (to around 30% of GDP) and deliver tax cuts equivalent to around £7,500 per household

• IEA research report Sharper Axes, Lower Taxes

New research by the Institute of Economic Affairs shows how the government could reduce public spending by an additional £215bn. This would mean the government would be spending around 30% of GDP instead of the government’s proposal of around 40%. The IEA’s proposals would deliver average tax reductions equivalent to around £7,500 per household each year.

The reforms proposed in Sharper Axes, Lower Taxes: Big Steps to a Smaller State could also increase economic growth by 0.75% a year leading to dramatic improvements in long-run living standards.

Delivering a comprehensive spending review by going through government spending area-by-area this report sets out how the government could reform spending and tax policy. It shows that the government’s aspirations – such as ensuring that all have access to decent health care, and providing a welfare system for the less well-off – could be achieved much more effectively with lower government spending.

Some of the biggest spending cuts include: £44bn from health reforms, £46.5bn from reforms to the welfare state and pensions; £17bn from defence; and £12bn from foreign aid. £40bn per annum will also be raised from asset sales.  (For a full list of reductions in expenditure, please see the notes to editors).

• Opinion poll results

Opinion poll research conducted for the IEA by ComRes shows overwhelming public support for a much deeper programme of spending cuts.

By the time of the next election, the government is intending to spend around 40% of national income, but 55% of the public who expressed an opinion believe that public spending should be 35% or lower and only 16% want public spending to be measurably more than the coalition is intending to spend (45% of national income or more). 29% believe the coalition has got it about right, favouring the state spending between 35% and 45% of national income.

A much more radical reduction in state spending is particularly popular amongst the young (67% of under 25s and 69% of 25-34 year olds support government spending being reduced to below 35% of national income). There is a broadly equal level of support from voters irrespective of their party political affiliation.

Given a straight choice between the coalition’s plans of government spending of 40% of national income and the IEA’s more radical plan of reducing spending to about 30% of GDP and implementing average tax cuts of £7,500 per household, the overwhelming majority (70%) favour the IEA’s proposal and only 30% favour the coalition plan.

Commenting on the report, Mark Littlewood, Director General at the Institute of Economic Affairs, said:

“The coalition government should listen more to the British people in general and less to organised special interest groups that push for more government spending. Lobbying from interest groups can push tax and government spending well beyond optimal levels. 

“This poll makes clear that the public favour a dramatic reduction in the size of government and the right to keep more of their own money rather than surrender it in tax.

“The government needs to adopt a Plan A+. Embracing the sort of proposals in this report would stimulate economic growth, which has remained disappointingly sluggish in the wake of the coalition’s unambitious plans so far.” 
 
Commenting on the report, Prof. Philip Booth, editor of the report and Editorial Director at the Institute of Economic Affairs, said:

“Even under these plans, the government would be spending nearly one third of national income. If the government were limited to such a budget it could still perform the tasks it needs to perform much more effectively. There would be access to good healthcare for all and the poor would still have their incomes topped up but the government would become the servant and not the master of the people again. We would, once again, be able to have a welfare system that did lock people in poverty.
 
“If the government wants to achieve genuine public service and welfare reform and ensure that health, education and other services are responsive to the people they are intended to serve it must take a long, hard look at these proposals.”

• Government’s plans insufficient

• Government spending is currently around 50% of national income. At these levels it is seriously damaging economic growth. Even if the coalition achieves its objectives, there will be only modest reductions in government spending. Nominal spending will rise, real spending will be cut by less than 1% per annum and spending as a proportion of national income will fall back only to 2007 levels – around 40%.

• A complete review of government functions could, using the government’s definitions of government spending and national income, lead to further cuts of £215 billion to around 30% of national income.

• Under these proposals, the government would also be making fewer unfunded health and pensions promises to future generations, thus putting the public finances on a sound long-term footing.

• Government spending – even in areas such as research and development, investment and education – has little or no beneficial effect on economic growth. The taxation necessary to fund government spending, however, seriously and adversely affects economic growth. A reduction in government spending of the order suggested by our authors would lead to economic growth increasing by more than 0.75% per annum: this would mean that national income would grow by an extra 20% every 25 years.

• Substantial tax reform needed

• To finance government spending of around 30% of GDP, taxation could be reduced and simplified.

• Although it is difficult to estimate precisely, it would seem feasible that tax could be set at:

o A single flat-rate income tax of about 15 per cent on income above the tax threshold, which would be determined by household size.
o A single person’s allowance could be around £12,000. Larger households would have much higher tax allowances so that a four-person household on median earnings would pay little income tax.
o Corporation tax of 15 per cent.
o National insurance rates of about 10 per cent split between employer and employee above a lower threshold than the income tax threshold so that all workers made some contribution.
o A value added tax of about 10 per cent across a broad base of spending.
 

ComRes conducted an online survey of 2,050 GB adults between the 8th and 10th July. Data were weighted to be demographically representative of all GB adults. ComRes is a member of the British Polling Council and abide by its rules.