Adam Memon: What we hope to see in the Budget (Economia)

Adam Memon, head of economic research at the Centre for Policy Studies, discusses his hopes for the Budget in Economia.

To read the original article, visit the Economia website.

“In the final Budget of this parliament, the chancellor George Osborne must restate the economic and moral case for cutting the deficit alongside outlining measures to boost living standards. The chancellor’s spending cuts in this parliament have led to public spending falling from 45.3% of GDP to 40.5% of GDP. These cuts have come alongside improvements in public sector productivity, strong economic growth and remarkable employment growth.

The chancellor must ensure that whatever else he does, he makes the case that cutting the deficit will help to prepare Britain for future shocks, will restore stability to the public finances and will cut the cost of government. The UK also faces a long term fiscal challenge which is primarily the result of an ageing population increasing pressures on pensions and health spending. In his Budget, the chancellor must make clear that his progress in the short term in cutting the deficit extends to a determination to tackle these long term problems.

However, as well being clear that Britain must live within its means, Osborne must outline how he will boost living standards in the next Parliament. The employment rate is at a record high and growth has recovered but living standards for too many have not yet recovered. There are certainly short term measures he can carry out directly to boost disposable incomes. As a result of reduced debt interest payments on index-linked Gilts as well as improved tax receipts, the chancellor finds himself with an unexpected surplus. Whilst sticking within his deficit reduction targets, he should for example build on his past increases in the personal allowance and raise it to £11,000 and also look at raising the national insurance threshold.

Nevertheless, real wages can only grow in the long term by improving the UK’s poor productivity performance. Supply side reforms to improve underlying productivity growth are therefore essential if Osborne is to be serious about generating sustainable and permanent rises in living standards. Research and development spending in the UK underperforms other European countries so the chancellor should outline measures to make the commercialisation of intellectual property easier, faster and cheaper through radical patent reforms. Substantial reforms to the fiscal regime of the sector North Sea oil and gas for example by heavily rolling back on the supplementary charge and by extending investment allowances would boost domestic energy production and energy security. On exports, cutting air passenger duty and revamping UKTI would help to cut the UK’s balance of payments deficit.

In addition, the chancellor should make clear that he will deal with the UK’s structural housing shortage. Home ownership is the foundation of a market democracy but the lack of house building is inflating the housing benefit bill and cuts medium term productivity prospects. More reforms to cut red tape and simply overly bureaucratic and expensive planning procedures are crucial. These measures should also come alongside a strategy to boost the supply of mortgage funding through reforms aimed at boosting banking sector competition.

Finally, the chancellor must make clear he will continue to help boost employment, productivity and family life through bold childcare reforms. Childcare policy cannot simply be a competition over who will offer the most taxpayer funded care. The chancellor must reclaim this area by embracing regulatory reforms of the sector to cut the cost of provision and boost competition as well as simplifying and streamlining the funding of the sector.

This Budget will set the scene for the election. The chancellor should use it to show how Britain can live within its means and increase living standards at the same time.”

To read the original article, visit the Economia website.

Date Added: Wednesday 18th March 2015