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Budget 2021: Think tank response round-up

Centre for Policy Studies

CPS logoRobert Colvile, Director – ‘Should help business and the economy rebound powerfully’

“The combination of business rate reductions, investment incentives and other measures should help business and the economy rebound powerfully in the next few years – and we are pleased to see our proposal for free ports at the heart of the Chancellor’s speech. But there is the danger of a cliff edge later on as support is withdrawn and taxes increased – or that businesses will anticipate higher taxes and fail to invest.

“Britain still has a huge problem with its long-term growth rates – as the latest OBR figures show only too clearly – and the tax burden is set to increase inexorably. We appreciate that the Chancellor needs to balance the books. But the great challenge facing the Government is not just to put the economy back on an even keel in the short term, but put in place permanent pro-growth measures that raise growth rates for good.”

Institute of Economic Affairs

institute economic affairsMark Littlewood, Director General – ‘A barrage of short-term costly measures’

“After months of damage inflicted by the pandemic and lockdown measures, the Chancellor had the opportunity to deliver a pro-business, pro-growth Budget by lowering and simplifying taxes and slashing unnecessary regulations.

“Instead, we received a barrage of short-term costly measures which risk depressing economic growth, reducing employment, hampering entrepreneurialism, and ultimately harming the long-term economic recovery. Dialling up taxes was a mistake, and our economic growth will be less impressive as a result.”

Adam Smith Institute

Adam Smith InstituteMatt Kilcoyne, Deputy Director – ‘The most serious attempt to rebalance the economy a Chancellor has made’

“Rishi Sunak’s super deduction will induce investment into Britain’s factories and help businesses bounce back and Britain’s economy boom as we leave the pandemic behind. We’d estimated at 100% full expensing would be worth over £2,214 per worker, going beyond that is a bold move to help the private sector build the recovery. It will benefit most those areas that have been left behind in recent decades. It is the most serious attempt to rebalance the economy a Chancellor has made and it is truly welcome.

“Rates relief and employment support will be welcome while the ability to operate and raise revenue remains suppressed even as we leave lockdown. But the success of vaccines means the economy will reopen and activity will return; the government cannot continue propping up our economy indefinitely. Moving forward, the strategy should be to get the state out of the way, by lowering taxes to encourage investment and cut red tape that hurts entrepreneurs.

“The Chancellor was right to say that the state should not be borrowing to pay for everyday public spending. But it’s hard to square that circle with a new commitment to guarantee mortgages of first time buyers. This is a Fannie Mae and Freddie Mac guarantee to boost the demand side — without a credible plan to boost supply of new homes in the places people want to live we’ll just end up with another housing bubble and the risk of boom and bust.

“Keir Starmer was right to remind the Conservative Party that the proper basis on which to make tax decisions is economics not the political cycle.”

TaxPayers’ Alliance

socialmedia avatarJohn O’Connell, Chief Executive – ‘Big tax hikes risk choking off the recovery’

“There were some wins for taxpayers today, but it doesn’t gloss over the fact that this was a tax-raising budget.

“The chancellor is helping to rescue struggling sectors but £30 billion worth of tax increases will hit hard-pressed households and businesses already under the highest tax burden in 70 years. 

“Big tax hikes risk choking off the recovery Rishi wants before it has even started, so let’s hope that other measures in the budget help to boost jobs, spur investment and ultimately revive the economy.” 

The Entrepreneurs Network

The Entrepreneurs NetworkSam Dumitriu, Research Director – ‘Chancellor needs to think hard about fundamentally reforming how international profit is taxed’

“A higher corporate tax rate will discourage investment and make the UK less competitive internationally, so it is right that the Chancellor has combined it with a new 130% Super Deduction for investment.

“However, when the two years are up and Corporation Tax rises to 25%, the UK will fall far down the list on international tax competitiveness. Although, we currently have a low headline rate, the effective rate that businesses actually pay is mid-table by international standards due to stingy capital allowances.

“To avoid an investment slump, as the OBR forecast, when the Super Deduction expires, the Chancellor should allow businesses to write off the full value of their investments – the so-called full expensing he mentioned at the despatch box.

“But a high rate, even with full expensing, increases the incentive to engage in sophisticated tax avoidance and shift headquarters. To counter that, the Chancellor needs to think hard about fundamentally reforming how international profit is taxed.”

Centre for Social Justice

Screen shot 2013 09 26 at 08.43.44Edward Davies, Policy Director – ‘A huge help to those working low-paid jobs’

“We are pleased the Chancellor is extending the £20 uplift in Universal Credit for another six months. Universal Credit is a lifeline for the poorest people in the UK and today’s decision will make a significant difference to many people.

“Likewise, the announced increase in the National Minimum Wage to £8.91 an hour from April is also welcome and will be a huge help to those working low-paid jobs.”

Joseph Rowntree Foundation

Joseph Rowntree FoundationHelen Barnard, Director – ‘Makes no sense and will pull hundreds of thousands more people into poverty’

“It is unacceptable that the Chancellor has decided to cut the incomes of millions of families by £1040-a-year in six months’ time. He said this Budget would “meet the moment” but this decision creates a perfect storm for the end of this year, with the main rate of unemployment support cut to its lowest level in real terms since 1990 just as furlough ends and job losses are expected to peak. This makes no sense and will pull hundreds of thousands more people into poverty as we head into winter.

“Even before Coronavirus, incomes were falling fastest for people with the lowest incomes due in large part to benefit cuts. Ministers know this short extension offers little relief or reassurance to the millions of families, both in and out-of-work, for whom this £20-a-week is helping to stay afloat. This cut to Universal Credit will increase hardship when the economic crisis is far from over and undermine our national road to recovery.

“It is not too late for the Chancellor to do the right thing: announce an extension of the £20 uplift to Universal Credit for at least the next year. It is also totally indefensible that people who are sick, disabled or carers claiming legacy benefits continue to be excluded from this vital support. The Government must urgently right this injustice.”

Resolution Foundation

Resolution FoundationTorsten Bell, Chief Executive – ‘Need to see wider economic stimulus to drive the recovery’

“It’s welcome that the furlough scheme which has seen British workers through this crisis will remain in place until restrictions are lifted, playing a critical bridging role between the lockdown and the recovery. The phased tapering off over the summer will also avoid a risky cliff edge.

“But the peak of unemployment is ahead rather than behind us. We also need to see wider economic stimulus to drive the recovery this autumn, and support for the millions of people who have been without work for long periods during this crisis.”

Institute for Fiscal Studies

Institute for Fiscal StudiesPaul Johnson, Director – ‘A big reversal of decades of policy direction and a significant risk’

“What we can be sure of is that Rishi Sunak has spent big again, extending some support right through 2021 at a cost of an additional £60 billion or more. As a result borrowing is now forecast to again be above 10% of national income in the coming financial year. Whether the big fiscal tightening planned for subsequent years will actually happen is less certain. It continues to depend on spending being lower than planned prior to the pandemic. And it also depends on a large increase in corporation tax actually being implemented without additional measures to at least ease its long-run impact. Make no mistake, this proposed increase in the main rate of corporation tax is a big reversal of decades of policy direction and a significant risk. For all the rhetoric about it leaving the headline rate here below that in other G7 countries, our effective tax rate will be relatively high.

“Mr Sunak made much of his desire to be honest and to level with the British people. The fact that he felt constrained to raise taxes by hitting companies and through freezing allowances, rather than through more explicit rises in people’s taxes, suggests there are limits to how far he wants to level with us as he attempts to raise the overall tax burden to its highest sustained level in history.”

Bright Blue

imageRyan Shorthouse, Chief Executive – ‘The Government has yet again foolishly cut, rather than maintained, the value of the cost of Fuel Duty’

“The Chancellor has been refreshingly generous, adaptive and pragmatic in his response to the economic havoc caused by Covid-19. He is right to extend the flagship furlough scheme until the autumn, gradually phasing in increased employer contributions. It has saved the livelihoods of millions of people. Indeed, considering its success, the Government might consider an adaptation of the furloughing scheme for future crises for businesses and workers – a government-supported insurance scheme requiring employer and employee contributions.

The Chancellor is right to set out how this Government will get a grip on the public finances in the coming years, but postpone action until the years ahead. However, this makes the decision to cut the international aid budget and public sector pay in the coming fiscal year, as announced last autumn, odd and unnecessary.

“There was an agenda that was notably lacklustre in the Budget. In the year of COP26, this was meant to be the year that we trigger a post-Covid green recovery. But the Government has yet again foolishly cut, rather than maintained, the value of the cost of Fuel Duty for drivers of petrol and diesel vehicles. And it still lacks the ambitious and necessary policies to support more people with the path to net zero, especially in the way they drive their cars and heat their homes.”

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