In The Party is Over – A Blueprint for Fiscal Stability, city economist Nigel Hawkins argues that reducing public spending is the most pressing challenge the new government. His report goes on to point out that – assuming the Treasury's growth forecasts are correct – the government will need to cut spending by 3 percent a year to balance the books by 2015. That means finding more than £90bn of cuts over the course of the current parliament. Hawkins also argues that no area of public spending - even the NHS - should be ring-fenced.
In Re-Booting Government: How to deal with the deficit without cutting vital services, Dr Eamonn Butler argues that reducing deficits and debt is essential. Debt imposes a large interest-payments tax on citizens, limits the options open to governments, and it weakens political leaders both at home and abroad. But in the long run, a cheese-slicer approach to cutting spending is not going to be enough. We need to completely rethink the role of the state, what it does, and how it does it. In short, we need to reboot government.
In this article, Václav Klaus argues that because so much political investment has gone into the Euro it will not be abolished, but the price of maintaining it will grow. This price will be borne both directly by eurozone countries but also indirectly by non-eurozone EU countries such as the Czech Republic and Britain.
This report reviews international evidence on the effect of capital gains tax rises on government revenues, finding that tax rises tend to decrease revenues while tax cuts tend to increase them. It suggests that aligning CGT rates with income tax, as the UK government has proposed, would significantly hit revenues and worsen the deficit, as well as discouraging much needed investment. It also refutes the idea that CGT is primarily a tax on the rich, suggesting instead that CGT hikes will hit ordinary families and – in particular – retirees. Finally, the report describes the idea that people can easily shift income to capital gains and thus avoid taxes as a theory in search of some evidence, pointing to numerous countries with high income taxes and low capital gains taxes where this does not seem to be problem.
A new economic responsibility act is needed to prevent future governments spending and borrowing too much, according to Dr Eamonn Butler. He outlines the rules that would be needed to protect the public finances and secure Britain's future economic growth.
In this think piece, ASI executive director Tom Clougherty reacts to each of the policies contained in the Lib Dem-Conservative coalition agreement.
In this study, Liam Ward-Proud analyses the accuracy of Treasury budget forecasts for GDP growth by comparing them with the ensuing growth. Examining three different types of forecast, some key trends are found in relation to the correlation, absolute errors and a bias towards overestimation in the sampled forecasts. The consequences for fiscal planning are then spelled out and a solution for mitigating the damage of inaccurate forecasting is put forward.
In this think piece Liam Ward-Proud examines two Congressional bills, one passed and one under Senate scrutiny, for their proposed reforms in relation to ‘too big to fail’ firms and the regulation of ‘alternative investments’. It is found that on neither issue do the bills get it right; in fact, the Senate bill manifestly enshrines the principle of taxpayer guarantees, showing no commitment to competitive markets. Both bills contain what are argued to be misguided and potentially futile attempts at regulating hedge funds and private equity dealers.
This briefing calls on the next government to pass an Economic Responsibility Act, which would place legally binding restraints on government’s fiscal policies. Specifically, it would: (1) cap government spending at one-third of GDP; (2) cap the budget deficit at 3% of GDP; (3) cap the national debt at 40% of GDP; (4) require that off-balance-sheet obligations were fully calculated and openly stated; and (5) allow government to borrow only to invest in capital projects, not to fund current expenditure. This briefing also recommends that new rules be introduced to limit government’s ability to raise taxes.
This think piece by economist David Simpson examines Gordon Brown's economic record, arguing that failures in the Labour government's monetary, fiscal and regulatory policy are responsible for the financial crisis and recession that have hit the UK economy over the past three years. As a result, says Simpson, the UK is condemned both to an effective standstill in the provision of public services and to increases in taxation that will affect all families, not just the rich.