CPS welcomes taper rate cut but warns on spending and growth

The Centre for Policy Studies think tank welcomed the Government’s decision to cut taxes for the working poor by reducing the Universal Credit taper rate – a flagship CPS policy.

It also welcomed the Chancellor’s new fiscal rules, which echo those proposed by the CPS and Sajid Javid in 2020, the decision to act on alcohol, fuel and flight duties, and other CPS priorities such as reforming business rates and investment.

But it warned that real-terms spending growth of 3.8% and long-term growth rates of barely half of that are unsustainable without a robust pro-growth and pro-business agenda, especially given the looming threat of inflation and a historically high tax burden.

Responding to the Government’s Autumn Budget and Spending Review today, Robert Colvile, Director of the Centre for Policy Studies, said:

‘It takes a rare political gift to steal shamelessly from both Nigel Lawson and Gordon Brown – but Rishi Sunak managed it. His speech promised to be fiscally prudent, cut borrowing and support business – but was also packed with generous promises on spending and praise for the power of government investment.

‘It is absolutely right to make a tax cut for the working poor the centrepiece of the Budget, and we are grateful to the Chancellor for crediting the CPS, among others, for its work on this. But if we are to get long-term growth rates above the 1.3% and 1.6% predicted, we need to stop raising taxes and do more to encourage enterprise – for example by making cuts to business rates and incentives for investment permanent rather than temporary.’


Responding to the Chancellor’s adoption of the flagship CPS policy to reduce the Universal Credit taper rate, James Heywood, CPS Head of Welfare and Opportunity, said: 

‘We are delighted to see the Chancellor agree to the CPS proposal to cut the Universal Credit taper rate. This will mean people on low pay keep more of their earnings, and put money in the pockets of working families. We have been calling for a 55p rate for some time, while others focused on keeping the poorly targeted £20 blanket uplift. We have always been clear that the focus should be on making work pay, and the Chancellor has heeded those calls.’


Responding to the decision to freeze fuel and alcohol duties, Tom Clougherty, CPS Head of Tax, said:

‘As highlighted by the CPS last week, freezing fuel and alcohol duties will help families facing a growing cost of living crisis. The planned reforms to alcohol duty are a sensible rationalisation, even if the system will remain more complex than it needs to be.’

On business rates and the broader taxation announcements, Clougherty added:

‘The Budget contained some welcome, pro-investment announcements on business rates, although the more fundamental reforms that Britain’s businesses need have been ducked for now. But we can’t ignore the bigger picture. The Government has already announced two huge tax increases this year, with the tax on individual earnings set to rise in 2022, and the tax on corporate profits slated to increase in 2023. Had those policies been revealed at this Budget, the headlines would be very different. For all the Chancellor’s nods to economic growth, low taxes, and a limited state, we are still going to have the highest tax burden since the post-war period, and we still face a massive corporate tax cliff edge in April 2023.’


Commenting on the increase to public sector pay, James Heywood, CPS Head of Welfare and Opportunity, said:

‘With private sector pay taking a hit during the pandemic, introducing pay restraint in the public sector was sensible. There continues to be a public pay premium over the private sector once pensions are factored in – now that the Government have decided to ease up on pay policy, there is a risk that gap widens again. Pay policy should be fair for all workers and taxpayers.’ 

On the National Living Wage increase, Heywood added:

‘We now have one of the world’s highest minimum wages. This distorts the labour market and effectively amounts to shifting the cost of government policy objectives onto employers, putting job creation and economic growth at risk. The Chancellor needs to consider how to deliver rising wages in the long-term without simply mandating them in law – ultimately, that only happens through rising productivity and growth.’

Date Added: Wednesday 27th October 2021