Sunday 12 November
The UK will find itself drowning in a sea of public debt unless Rishi Sunak and his Chancellor Jeremy Hunt change course and cut business and personal taxes in the Autumn Statement later this month.
The warning that current “hair-shirt” policies are condemning the economy to stagnation and will soon drive up already high debt levels comes from Professor Patrick Minford writing for the Centre for Brexit Policy.
In a new report, What Should Be Done in the Autumn Statement, he argues that a £85 billion tax cut now – merely putting levels back to where they were before Mr Sunak became prime minister just over a year ago – would avert the threat of a debt mountain crushing living standards over the next few years.
The economist estimates that the debt to GDP ratio, currently around 90 per cent, would be put on a downward path towards 50 per cent over the next decade if Treasury orthodoxy was junked and the Government committed itself to a bold growth agenda.
“A general programme of corporate and income tax cuts could stimulate UK growth by 2 per cent per annum over the next decade.”
This growth spurt could be further boosted by speeding up the repeal of EU rules and regulations hanging over from Britain’s past membership of the trading bloc.
The CBP report is scathing about the Treasury and Bank of England “panic” which derailed the short lived attempt of the former prime minister, Liz Truss, to restore economic growth by cutting taxes and maintaining help for households knocked off balance by the surge in energy bills.
“It is only in the UK Treasury and the Bank of England that we see official panic in the rectification of these Covid errors – and, in particular, of the excessive stimulus from both monetary and fiscal policy that caused the UK’s high inflation – by the current hairshirt policies of fiscal and monetary overkill.”
The report’s author, Professor Patrick Minford, an adviser to former prime minister Margaret Thatcher, warns that the UK economy will remain in the deep freeze unless this official “overkill” is abandoned.
He says that the jettisoning of Ms Truss’s growth agenda ‘has precipitated the zero growth prospects we now face”.
He adds: “This in turn ironically implies that the debt ratio will spiral out of control in the long term as (tax) revenue flattens off in the face of rising public spending needs.
“It is plainly better to fund a short-term fall off in revenue with borrowing and so maintain the growth prospect that will deliver long-term solvency”
In addition, the paper calls for scrapping short-term fiscal rules in favour of long-term solvency targets so that fiscal and monetary policy can work jointly in tandem and taking steps to enable Number 10 to overcome the ‘veto power’ of the OBR and provide more effective economic leadership.
The call for a change of course is backed by CBP chairman David Jones, a former Cabinet minister.
He said: “Professor Minford makes a compelling argument that UK economic policy needs to put back on track. One of its stated objectives is to get the debt to GDP ratio on a downward path, but, as this report shows, the combination of a stringent monetary and fiscal squeeze will have the opposite effect to that which the Government intends.
“It will drive up debt because it will stifle growth and resultant tax revenues. Living standards will likely remain depressed.
“But there is time to put things right. The Chancellor in the Autumn Statement must take steps to restore economic growth, tackle the debt mountain and restore the positivity the country craves.”