Adam Smith Institute Budget 2014 Wishlist

In advance of the budget release tomorrow, the Adam Smith Institute has outlined seven announcements it would like to hear from the Chancellor:

1. Personal allowance and employee National Insurance thresholds should be merged and set at £13k/y after the NMW rises to £6.50/hour. The government should legislate to keep the tax & NI thresholds at at least at the NMW level. It is crucial that the National Insurance contributions threshold be raised as well as the income tax threshold.

2. The corporation tax cut planned for 2015 should be brought forward by a year (to 20% this year), with a commitment reduce it further by 2.5% per annum for the next three years to 12.5%. In the long-run it should be abolished altogether as it is a stealth tax on income (workers’ wages bear approximately 60% of the tax) and a distortionary tax on capital.

3. The Chancellor should go forward with plans to merge Income Tax and National Insurance. Employers’ National Insurance Contributions should be included on workers’ wage slips to highlight that this is a stealth tax on wages.

4. Help to Buy should be wound down ahead of schedule to reduce house prices in London and the South East. To create jobs and encourage construction the Chancellor should endorse radical planning reform that would allow more houses to be built.

5. Subsidies (“financial relief”) to energy intensive industries should be ended with the money saved paying for a broad reduction in green energy taxes to reduce consumers’ energy bills.

6. The ring-fence of NHS spending should be abolished. If savings can be made in the education, policing and welfare budgets, they can be made in the healthcare budget as well.

7. The Bank of England’s mandate should be revised, with the Bank instructed to target the level of nominal spending (nominal GDP) in the economy along a predetermined trend. This would reduce inflation in boom periods and prevent deep recessions by stabilising aggregate demand.

Commenting on the proposed policy changes, Research Director Sam Bowman said:

"National Insurance reform must be top of the agenda in this year's budget. At a minimum, Ben Gummer MP's proposal to rename it the 'Earnings Tax', to show workers that NICs are just another form of income tax, should be adopted, and employers' contributions should be cut back as much as possible. Raising the Personal Allowance is good, but raising the National Insurance threshold would do more to help part-time workers who do not earn enough to pay income tax as it is. 

"The government's corporation tax cuts should be sped up and the Chancellor should make a long-term commitment to reducing the corporation tax even more. Corporation Tax is an inefficient tax that mostly falls on workers' wages, with the remainder acting as a distortionary capital tax. Ideally the tax cuts would be offset by commensurate cuts to spending.
"Perhaps most importantly of all in the long-term, the Chancellor should announce a change to the Bank of England's mandate, replacing its inflation target with a nominal income target instead. By stabilising nominal income growth at a predictable rate, the Bank would provide macroeconomic stability to the economy that would prevent any repeat of the deep recession we are only now starting to emerge from."

For further comments or to arrange an interview, contact Kate Andrews, Communications Manager, at /07584 778 207.

The Adam Smith Institute is an independent libertarian think tank based in London. It advocates liberal public policies to create a richer, freer world.