I've just uploaded our 2-page response to the emergency budget, which makes the following points:
- ASI broadly welcomes the emergency budget, and is particularly happy about (a) the fiscal consolidation, (b) the personal allowance and (c) corporation tax changes.
- However, the cuts are not as severe as other commentators are suggesting (there’s a big difference between a cut in a planned increase, and an actual decrease). ASI’s plans would have gone further, and would have allowed the government to cancel tax rises that came into force in April 2010, and avoid any further tax increases.
- Even on the government’s plans, the VAT rise (which is regressive) could have been avoided if health spending was not ringfenced. The ASI has previously called for £11bn in health cuts over five years – a figure which is certainly achievable, given how profligate health spending has been in the last 10 years.
- The CGT hike is better than it might have been, but gains should still be subject to indexation. Otherwise people may end up paying a 28% tax on inflation. Moreover, CGT will not raise the revenue the government predicts. In particular, they have been far too optimistic about how much extra income tax will be collected as a result of the changes.
- In unprotected departments, which face 25% cuts over the next 4 years, it is vital that the government does not simply take a salami-slicer approach, and instead looks to fundamentally reform the role and activities of the state in these areas. This should be about refocusing government on core priorities, and completely abolishing marginal, outdated or unnecessary programmes.
- Finally, the government’s proposals on benefits and tax credits are welcome from the point of view of cutting spending, but will increase disincentives to work. As such, a far-reaching overhaul of the benefits and tax credits system undertaken as soon as practically possible.
You can download the full response here in PDF format.