An economic think-tank set up by ex-Tory PM Liz Truss has suggested that plans proposed by the current Chancellor Rachel Reeves could create a “black hole” of more than £80 billion.
Liz Truss, who was ousted as PM after her 2022 Budget of unfunded tax cuts to boost growth led to a slump in the pound and soaring interest rates, set up the Growth Commission after she departed from office.
Economists at the Commission calculate that if the government presses ahead with all its rumoured tax-raising policies in next week’s Budget the impact on the UK’s GDP by 2030-31 would be severe.
In a pre-Budget report, the Commission said that while the government’s planning proposals should boost growth, other 'putative measures' under discussion would reduce GDP per capita by 8.8% by 2030-31 and by 12.2% by 2045-46.
Policies of concern to the think-tank include a two-percentage-point rise in employers’ National Insurance contributions; raising the rate of tax on capital gains to the same rates as income tax; implementing a Carbon Border Adjustment Mechanism; raising the minimum wage by 10% and abolishing ‘non-dom’ status.
if these policies are adopted lost tax revenues are estimated at £84 billion by 2030-31 and £134 billion by 2045-46.
All of these measures at once, a worst-case scenario, would see GDP per person of £29,012 by 2030 instead of £32,800 if there were no policy changes, the economists said.
Shanker Singham, Growth Commission chairman and closely associated with the similar lobbying group the Institute of Economic Affairs, said: “Regrettably, with the notable exception of the Government’s planning reforms, numerous policies that have been trailed in the media for possible inclusion in the Budget are likely on our modelling to reduce GDP per capita growth in the coming years.
“If the Government is to deliver on its growth pledge, it urgently needs to focus on making the public sector more productive, cutting the most damaging taxes and repealing the most economically detrimental regulations, which are contributing to the current economic stagnation.”
The Commission instead suggests abolishing inheritance tax, lifting the freeze on income tax thresholds and cutting corporation tax from 25% to 19% to boost UK growth.