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This week’s Spring Statement included some big, bold announcements, with obvious voter appeal. But the windfall from higher-than-expected tax receipts and the downside risks to economic growth mean that the Chancellor could, and probably should, have done much more.
It is worth repeating that the public finances are in better shape than anticipated. This is despite the surge in inflation – and indeed partly because of it. Over time, the boost to tax revenues from higher nominal incomes and prices (think of all those extra VAT receipts) will more than offset the higher cost of servicing government debt.
You might not have picked this up from the gloomy headlines. But aside from a small upward revision to the estimate for 2022-23, government borrowing is projected to be lower than previously expected in every year of the forecast horizon. The debt-to-GDP ratio is forecast to fall more quickly, too.
This left ample room for bigger tax cuts, or at least a rethink of planned tax hikes, and more realistic increases to benefits. Even if you are not a fan of welfare in general, it makes little sense to raise benefits by far less than inflation when low-income households will be hit hardest by the cost-of-living crisis.
Instead, the Chancellor has insisted that he needs a large “margin of safety,” citing the Office for Budget Responsibility's view that any fiscal headroom could be “wiped out by relatively small changes to the economic outlook”. But this headroom is measured against fiscal targets which are pretty arbitrary anyway.
What’s more, an overly cautious approach risks turning what might only be a temporary squeeze on real incomes into a full-blown recession. Then it would be too late. A wait-and-see policy would not then be the safer option when doing more now could actually secure a stronger economic recovery. You can read my comments on this issue in The Independent here.
Julian Jessop
Economics Fellow, Institute of Economic Affairs
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A MITIGATION MINI-BUDGET
Responding to the Spring Statement, IEA Director General Mark Littlewood said: "This was a mitigation mini-Budget, not a radical one". Mark argued that the Statement signalled the Chancellor's "aspiration to get public spending back on a more sustainable footing" but expressed concern over the national debt. Read the IEA's full press comment here.
The cost of servicing the UK's debt is expected to reach £83 billion in 2022/23. Quoted in the Daily Mail, Mark insisted that Britain must learn to live within its means. Read here.
Giving his immediate reaction on the Jeremy Vine Show on BBC Radio 2, Mark said he was "pleasantly surprised" with the Statement as a whole, and welcomed the increase in the National Insurance Contributions threshold. Listen here (from 1hr37m).
Mark also appeared on BBC Radio 5 Live, saying: "we are starting to move in the direction of taxes going down... this is a course correction". Watch highlights here You can also watch Mark discuss the Statement on GB News here.
IEA Director of Communications Annabel Denham gave her verdict on BBC Radio Scotland. While the Chancellor had beaten her (low) expectations, she argued that he could have gone further in reducing the tax burden on households. Listen here. (from 2:38:40).
Ahead of the mini-budget, Annabel observed in an article for The Telegraph Business that, while it was Gordon Brown who radically altered the relationship between government and the economy, Conservative governments have done little to reverse it.
Annabel pointed out in The Spectator that, although the government has dealt with a series of unprecedented crises, to blame such events for the seismic tax burden or soaring energy bills is misleading, given many of the problems we face today have been compounded by state intervention.
On Tuesday, IEA Senior Advisor to the Director General Sam Collins warned that not only was returning to free market principles the right way to deal with the economic situation, but it was also necessary if the Conservatives want to avoid defeat at the next election. Read his article for CapX here.
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LIVE WITH LITTLEWOOD
IEA Director General Mark Littlewood took stock of the Chancellor's announcements in a Spring Statement Special episode of Live with Littlewood on Wednesday.
Mark was joined by Greg Smith, Member of Parliament for Buckingham; Economist Vicky Pryce; IEA Head of Lifestyle Economics Christopher Snowdon; and Duncan Simpson, Research Director at the TaxPayers' Alliance.
Greg argued the Spring Statement was a "step in the right direction", adding that it "was the first glimmer of hope that [the Chancellor] would live up to his tax cutting credentials". Vicky was more sceptical, suggesting Rishi Sunak should have scrapped the National Insurance Contributions hike instead of tinkering around the edges of the fiscal framework.
Christopher and Duncan were equally pessimistic about the future of the UK economy, noting that the government should address the excessive waste in the public sector and look at simplifying the UK's tax code.
You can watch the full episode on the IEA YouTube Channel here.
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OWN GOAL?
On Monday the IEA released its latest paper, Red Card: Why English Football doesn’t need an independent regulator, authored by IEA Editorial and Research Fellow Professor Len Shackleton and IEA Head of Regulatory Affairs Victoria Hewson.
The paper analysed the Fan-Led Review of Football Governance, which has called for a government backed regulator for English football. Read the paper here.
'Red Card' was launched at a panel discussion hosted at the IEA, chaired by Victoria. Panelists included Damian Collins MP, Len and Simon Jordan, talkSPORT presenter and former Chairman of Crystal Palace FC.
You can watch the lively panel discussion on our YouTube Channel here.
The paper was covered widely in the press. IEA Director General Mark Littlewood warned in his fortnightly column for The Times that the proposed regulator could bring a golden era of English football to a close.
Len wrote opinion pieces for The Telegraph and CapX ,while Victoria appeared on GB News to discuss the paper and also wrote for City AM.
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iN THE MEDIA
In the headlines... Annabel Denham appeared on Sky News on Thursday evening to discuss the Friday papers. As well as the Spring Statement, she discussed NATO sanctions on Russia and the fallout from P&O Ferries' decision to make 800 of its staff redundant.
Go nuclear... The war in Ukraine has left many countries vulnerable to energy supply disruptions. To address our over-reliance on hostile states for energy supplies, and combat rising bills, the UK government has turned its attention to nuclear power.
Quoted in City AM, IEA Energy Analyst Andy Mayer said: "the problem with nuclear is that we need it, but the projects on offer are at least 10 years away, cost more than billed and will be delivered late". Read here on page 14.
Andy also appeared on BBC Radio 2, arguing that failure to harness domestic energy supplies has left us reliant on expensive imports. Listen to highlights here.
Baby bust?... The latest figures show birth rate is increasing but has failed to reach 2019 levels, despite many experts anticipating a lockdown induced baby boom.
IEA Head of Lifestyle Economics Christopher Snowdon said the news was hardly surprising as the lockdown policies caused immense financial uncertainty. Christopher noted that "these days we have contraception, and people tend to plan their families a bit more carefully”. Read his comments in The Telegraph here.
Target Putin, not Russian culture... IEA Head of Public Policy Matthew Lesh wrote for 1828, speaking out against growing anti-Russian sentiment amid the war in Ukraine. Although it is vital that the West show strong resolve and sanction the Russian oligarchs financing the war, it is both unjust and counter-productive to censor Russian culture.
On the IEA blog... IEA Academic and Research James Forder examines the government's 'Green Savings Bonds', finding that they are neither 'safe' nor 'green', as marketed. Read here.
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IEA DIGITAL
Net Zero Debate... Reaching Net Zero carbon emissions by 2050 is a – if not the – defining issue of our time. It will have far-reaching consequences for industry, energy security, and the planet. To debate climate targets and whether we need a referendum on Net Zero, IEA Director General Mark Littlewood welcomed former Leader of the Liberal Democrats Sir Vince Cable and Richard Tice, Leader of Reform UK.
Richard argued that the UK should have a referendum on Net Zero commitments. He noted climate policy lacks democratic scrutiny and is making British households worse off. Sir Vince warned that a referendum would be ineffective and insisted the UK ought to retain targets to combat climate change. Watch here.
Markets & Morality... In the latest episode of Markets & Morality, Director of EPICENTER Adam Bartha welcomed Kara Frederick from The Heritage Foundation and the IEA's Matthew Lesh to debate the role of tech companies.
Kara argued that new regulation is needed in order to curb the power of left-leaning American tech companies, while Matthew highlighted the unintended consequences of such proposals and suggested that the competitive tech scene will address most of these concerns. Watch the full discussion here.
IEA Podcast... IEA Communications and Public Affairs Officer Kieran Neild-Ali sat down with Professor Patrick Schotanus to discuss his article on cognitive economics in the latest volume of Economic Affairs, the IEA's academic journal. Patrick is a visiting professor at the Edinburgh Business School and heads up the research program in cognitive economics, which partners cognitive science with economics. Listen here.
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CALLING ALL STUDENTS!
We are excited to launch the Economic Thought Leaders’ Symposium at the University of Buckingham from 7-9 September 2022.
The theme for this year’s programme is The Economics of War and Peace. We will discuss topics like trade not war, international institutions, diplomacy and game theory. To apply, please send a CV and cover letter explaining why you’d like to attend, as well as 500 words on promoting the reconstruction of an economy after a war to [email protected] by 17 June 2022. You can find out more here.
We have launched the 2022 Dorian Fisher Essay Competition. Named after the beloved wife of our founder Sir Antony Fisher, this is our biggest essay competition of the year, exclusively for A-Level and IB students.
First prize will receive £500, with a separate prize of £500 for the school with the highest number of entrants. The deadline for this year’s competition is Friday 29 July 2022. You can find out more here.
Sixth Form Future Thought Leaders’ Programme... You can also apply to attend a week-long programme for sixth formers which will take place from Monday 25 – Friday 29 July. The week will include lectures, discussions, and debates with expert economists.
Due to high demand, we are pleased to announce that an additional week of the Sixth Form Future Thought Leaders’ internship will also take place at the IEA between Monday 18 – Friday 22 July. This week-long programme for sixth formers is a way to get experience discussing economic ideas and concepts beyond the exam curriculum.
To apply, please send a CV and short covering letter to IEA Outreach Coordinator Thomas Robinson at [email protected] explaining why you would like to take part.
Residential Summer School... In partnership with the Institute of International Monetary Research, the Vinson Centre, and the Initiative for African Free Trade and Prosperity, the IEA will host a residential summer school.
This programme is open to undergraduate students and will take place from 27 June to 8 July. It will have four streams: general economics, monetary theory, economic history, and trade and globalisation.
Summer School Internship... Last but not least, our summer school internship will start from Tuesday 2 August – Friday 19 August. Interns will participate in lectures, seminars, debates, discussions, as well as workshops on professional and career development.
The deadline to apply for these programmes is 1 April. You can find out more about all of our internship programmes here, or email IEA Head of Outreach Brittany Davis at [email protected] with any questions.
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