The Chancellor, Rishi Sunak, delivered his Autumn Budget on Wednesday. Much was made by the Chancellor of his generous spending plans. While there were no new substantial tax rate hikes, much improved growth forecasts (combined with fiscal drag) were billed as making up most of the tax needed to cover the new spending commitments.
But this budget signalled the end of the former small state/low budget stance of the Conservative party, and the rise of the overall budget spend to breach, and stay, above 40 per cent of GDP – even once Covid spending has fallen away.
The newly adopted aim to make the UK a high-wage, high-skill economy is laudable and desirable, but it is not clear that the Government has thought hard enough, or listened to employers carefully enough, to create the backdrop to achieve this.
The Chancellor is relying on much higher productivity growth than the last decade has delivered, but has not formulated or set out specific policies with a clear and well-established link to productivity growth. Since the public sector is by far the largest sector in the UK economy, and one with almost zero productivity growth, expanding it further will therefore not be one of those policies.
Encouraging the highest productivity sectors in the UK to grow, and enhance the productivity of lower-productivity sectors with technological innovation and improved capital intensity, would repeat the success of the 1992-2007 period, when the UK sustained strong productivity growth and strongly rising tax revenues to pay for better public services. Less regulation, and lower tax rates in the sectors of the economy that are elastic with respect to tax rates, would help the private sector to thrive – and hence to deliver the higher productivity that the Government seeks to achieve.
This week, the IEA published a short paper on public sector pensions – The Great British Rake-off. This is not a policy document; but rather an analysis of the quality of government financial reporting – something the IEA rarely does. But despite the somewhat technical nature of the content, the paper reveals a complex and confusing muddle at the heart of the government’s reporting of a simple question, namely: how much do public sector pensions cost ?
The answer, astonishingly, is that they cost about twice what the Government tells everyone they cost – around 60 per cent of salary, rather than the 30 per cent that is generally promulgated. This matters a great deal – the difference between 30 per cent of pay and 60 per cent of pay in the public sector is about £57bn of Government spending. Spending which no-one knows about. But it is real spending, and each year it’s added to the government’s debt. It is a scandal, and one which is very, very hard to get Ministers and MPs to get to grips with. But it is creating a huge intergenerational transfer from young to old, and also a huge divide in retirement between the former public employee ‘haves’, and the rest of the economy’s ‘have nots’. Reform is urgently needed.
Neil Record
Chairman, Institute of Economic Affairs
|
|
|
THE GREAT BRITISH RAKE-OFF
Neil's report on the cost of public sector pensions was covered across the press, including in iNews, the regional press and trade publications.
In an article for The Telegraph, Neil concluded that the total state pension liabilities will reach £2.5 trillion on 31 March 2021, exceeding the national debt. He noted that this will have to be paid for by future taxpayers – most of whom do not benefit from this pensions largesse.
Writing for City AM, IEA Director General Mark Littlewood noted that the government appears to be addicted to spending taxpayers' money, instead of reducing the tax burden. Referencing Neil's paper, he warned that the annual cost of public sector pensions could be double what the government accounts claim.
And in an article for CapX, IEA Director of Communications Annabel Denham pointed out that if a private company reported its pensions costs the way the government does it would be sanctioned.
Elsewhere, the report was mentioned on LBC, talkRadio and GB News.
|
|
|
|
TAXING TIMES
Ahead of Wednesday's Budget, IEA Director General Mark Littlewood gave his predictions on GB News and talkRadio from College Green.
He noted that the Chancellor is likely to "spend a lot of money he doesn't have" and that it's been twenty years since a Chancellor last proposed a balanced budget. Watch highlights here.
As predicted, the Budget included hefty spending commitments, with Whitehall departments set to receive a rise in overall spending, totalling £150bn over the course of this Parliament.
The spending spree was somewhat sweetened by reforms to alcohol duty. Sunak referenced the Institute of Economic Affairs' work on simplifying the way we tax alcohol when he announced the changes to cut alcohol duty. The Telegraph reported the announcement.
Mark also appeared on BBC Radio 2 with Jeremy Vine shortly after the Sunak's speech, which you can catch up on here. And you can read the IEA's full Budget response here.
On the podcast this week, IEA Communications and Marketing Assistant Kieran Neild-Ali discussed the details of the Budget with our Senior Policy Advisor Sam Collins and Policy Analyst at the TaxPayers' Alliance Darwin Friend.You can listen here.
|
|
|
IEA PATREON
Thank you to all of you who have already signed up to become an IEA Online Patron. Becoming a Patron grants you VIP access to our latest videos, priority invites to our virtual events, and the opportunity to engage directly with IEA Director General Mark Littlewood and the IEA team. For just a small donation you can get all these benefits and more.
To visit the page and find out more about the IEA’s Patreon, follow the link here or watch our trailer here.
|
|
|
IEA DIGITAL
On this week's episode of Live with Littlewood... IEA Director General Mark Littlewood was joined in the studio by talkRADIO host Mike Graham; Bishop Auckland MP Dehenna Davison; Head of Energy and Environment at the Centre for Policy Studies Eamonn Ives; and IEA Head of Political Economy Dr Kristian Niemietz.
They discussed the Budget, Neil Record's paper The Great British Rake-Off and COP26. Watch now.
Markets and Morality is back with a new host, Director of EPICENTER Adam Bartha. President of the Institut économique Molinari Cecile Philipe and Andrew Cooper, President of LibertyWorks, one of Australia's leading classical liberal think tanks, debated whether governments should adopt a zero Covid strategy and the economic impact of pursuing such a policy. You can watch here.
|
|
|
|
YOU'RE INVITED
Are the tech giants too powerful? Does the dominance of Facebook, Google and other digital platforms threaten competition, innovation and consumer welfare?
On Thursday 4th November, the IEA will host an all-day conference with The Information Technology and Innovation Foundation (ITIF).
The conference will welcome experts to discuss assertive antitrust enforcement and the digital economy, with key note speeches from Chris Philp MP, Minister of State at the Department for Digital, Culture, Media and Sport and Michael Grenfell, Executive Director of Enforcement, Competition and Markets Authority.
You can watch the proceedings via Zoom from 9.15am. Register here.
|
|
|
|
|
