The Telegraph, October 14, Professor Patrick Minford
The antigrowth coalition has successfully stuck the blame on Kwasi Kwarteng for turbulence in our financial markets. They have ignored that doubts on UK public finances were stirred up by Institute for Fiscal Studies analysis that government borrowing would hit £200 billion for the current year. This was far above any reasonable worst-case scenario. Their longer-term projections are based on absurdly gloomy forecasts of GDP growth: they assume 0.8 per cent growth from 2021 to 2026, which amounts to a recession that never ends.
Our long-standing and validated models developed at Cardiff University show a far less gloomy picture. According to our models, with only 2 per cent growth (the UK average for the thirty years pre-Covid), tax revenues will grow rapidly. This is because we have a highly progressive tax system where the marginal tax rate is high relative to the average net tax rate. This growth in tax revenue should be quite enough to pay for a reasonable growth of public services. In the near term, it is likely that the debt-to-GDP ratio will fall anyway as inflation reduces the real value of debt rather sharply.
By contrast with all this, our models show that sticking with high tax policies, such as the increase in Corporation Tax, would cause a fiscal implosion after a sharp reduction in growth, with the debt ratio rising uncontrollably. This highlights why the U-turn on tax cuts is insane and suicidal.
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