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Friday’s “fiscal event” offers a clear indication of a change in approach to economic policy. It brings a further large fiscal relaxation on top of the one entailed by the energy price measures already announced. More than that, though, it shows a clear change of direction from that of the Johnson government. That is clearest in the reversal of the planned increases in National Insurance and Corporation Tax. But in a broader sense, it is true of the substantial reductions in income tax as well. We are moving back from a position where the government gave every impression of being content to be taking a very large share of national income even by the standards of the postwar period.
The intent is surely to be welcomed. These moves are clearly and properly aimed at creating the incentives which will promote growth. The focus on that objective is also evident in other decisions, including notably the extension of the Seed Enterprise Investment Scheme.
Desirable as enhanced incentives are, the possibility that the budgetary measures will so spur growth as to cover the government’s loss of revenue seems very remote. If there is actually to be a great stimulus to growth, it will surely have to come from deregulation. Here, so far, the government has done very little more than make promises. But the fiscal matters now having been addressed, serious attention must fall on actually seizing the opportunities of Brexit. Perhaps even more than the budgetary actions, this will involve taking unpopular decisions for the long term health of the economy.
Two early tests of the government’s determination and resilience will be found in its handling of the Northern Ireland Protocol and the desperate need for revision of the Online Safety Bill. But there are plenty more, perhaps less urgent, but every bit as important, following after them.
James Forder
IEA Academic and Research Director
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BRING ON THE BUDGET
On Friday, Chancellor of the Exchequer Kwasi Kwarteng announced a series of bold tax cuts and supply-side reforms hat he hopes will boost growth rates to 2.5 per cent.
Following the announcement, the IEA hosted a joint briefing with the TaxPayers' Alliance, chaired by IEA Director General Mark Littlewood and attended by a number of high-profile lobby journalists.
IEA Economics Fellow Julian Jessop analysed the implications for government borrowing and debt; Executive Director at Europe Economics Andrew Lilico presented the results of the TPA's dynamic tax modelling which, in lieu of OBR forecasts, provide estimates of the impact of the measures on growth; and TPA Research Director Duncan Simpson compared the UK's current and projected growth with other G7 countries. Watch the full discussion here.
In the hours following the Chancellor's speech, IEA spokespeople appeared across the media to give their verdict on the Chancellor's 'mini budget'.
IEA Head of Public Policy Matthew Lesh wrote for The Telegraph, urging the Chancellor to continue with pro-growth economic policies and to stick to his principles, regardless of backlash from opposition voices.
"The Chancellor has demonstrated this government will entirely reject the commentariat dogmas in favour of economic growth, reducing taxes and cutting red tape. This will show that Britain is open for business."
Matthew later appeared on BBC News, describing the fiscal event as "a seismic change in government's approach to policymaking".
On BBC Politics Live, Julian Jessop noted the importance of meaningful reform on the supply-side, as well as tax cuts, in delivering economic growth.
And on TalkTV, Mark Littlewood praised the Chancellor's pro-growth strategy and anticipated future supply-side reforms and deregulation.
Writing for The Sunday Telegraph, Mark praised the budget as the "most dramatic in living memory". However, he posed two major questions to the new administration: exactly how bold are they going to be on deregulating the economy, and do they have a meaningful policy when it comes to reducing state spending and debt? Read here.
And, in a column for The Express, Mark hailed the government's move towards growth and urged the Chancellor to continue his reformist zeal:
"This is a very encouraging start, but the government must not take its foot off the pedal. It will be important to keep reforming the tax system and spell out details on cutting burdensome red tape, including sunsetting EU regulations."
Mark also appeared on Sky News, Times Radio, BBC Radio 2, talkTV and several other stations to give his assessment of the announcements.
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A SIGH OF RELIEF?
Friday's 'mini budget' was not the only major announcement this week. On Wednesday, the government put forward the Energy Bill Relief Scheme, which will subsidise energy bills by at least 50 per cent for businesses, charities and public sector organisations.
In The Express, IEA Energy Analyst Andy Mayer voiced his concern over the economics of the government's energy price caps. Andy argued that rather than "subsidising zombie companies that should fail, alongside genuine businesses who should survive", the government should have cut personal and business taxes to encourage responsible energy use.
Andy also appeared on LBC, questioning the cost of the relief and the impact it may have on future generations. He asserted:
"£100-200 billion is not small change. It's money that is either going to be put on future taxes or future energy bills."
And, quoted in The Times, Andy argued that tax cuts and targeted support would have been “a more effective solution, encouraging less energy use, while rewarding those who had already invested in energy”.
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iN THE MEDIA
Trickle-down slander... Andy Mayer appeared on BBC Radio Ulster to discuss the notion of 'trickle-down economics'. Andy regarded the concept as a left-wing slur used to misrepresent supply-side economics. Listen here.
Who dares wins... IEA Acting Director of Communications Emily Carver wrote for The Independent on Liz Truss' pro growth strategy. Emily noted:
"Truss and Kwarteng have shown that they are willing to address key issues like our dire 0.4 per cent per year productivity growth, with the chancellor signalling that wage-killing measures like corporation tax should be kept low. A reversal of the national insurance hike will also leave more money in working people’s pockets."
Asleep at the wheel... Writing for The Express, Julian Jessop gave his assessment of the Bank of England Monetary Policy Committee's (MPC) decision to only raise interest rates by half a percentage point, noting that UK interest rates are still "abnormally low" and need to rise further to get inflation expectations back down and return inflation to the two percent target again.
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GOING GLOBAL
What can free marketeers do to ensure that conservatives return to a path of market liberalisation across Europe? EPICENTER Director Adam Bartha led a conversation about this challenge at New Direction’s Defending Freedom Conference in Estonia this week.
By taking a tally of anti-market reforms implemented by right-wing governments across Europe, Adam highlighted the need for a different approach for conservatives, if they want to be the voice of economic reason. Pointing to the new administration in the UK as an example, he urged other right-wing forces across Europe to do the same soul searching. Watch the full panel discussion here.
The Initiative for African Trade and Prosperity (IATP) and its partner think tanks in Africa have had a busy week promoting the ideas of free trade and open societies to audiences across the continent. They have already distributed thousands of copies of Eamonn Butler’s An Introduction to Trade and Globalisation in English, French, and Swahili. The contents of the book are then often used as a basis for events, media interviews, policy briefings, videos, and more.
Last week, Liberty Sparks, partner in Tanzania hosted their annual Young Scholars Colloquium with 25 media professionals from six African countries to discuss the merits of free markets, An Introduction to Trade and Globalisation, and the new African Continental Free Trade Area.
On Monday, the Students’ Organisation for Liberty and Entrepreneurship in South Sudan hosted an event at Juba University that focused on free trade and economic freedom with more than 130 students – each of whom received a copy of the book.
And, on Tuesday, representatives from Liberty Sparks appeared on national television to discuss the book. On the same day, Action for Liberty and Economic Development in Uganda met with the Sudanese ambassador to discuss ways to liberalise trade between the two states, and to also present him a copy of the book.
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FOR THE CALENDAR
IIMR Webinar Series... The Institute of International Monetary Research, based at the University of Buckingham, is hosting a series of webinars in October.
The first, taking place on October 5th, will feature Charles Calomiris of Columbia Business School on the question: Does the Fed need a tighter monetary policy rule and Congress scrutiny to restore price stability?
On October 19th, Pedro Schwarz of Universidad Camilo José Cela will discuss: Monetarism in an historical perspective: why is it not fashionable anymore?'
If you are interested in attending either of these events, more information can be found here.
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CALLING ALL STUDENTS!
Monetary policy essay price... Applications are now open for the monetary policy essay prize, organised by the IEA, the Institute of International Monetary Policy Research and the Vinson Centre.
This year's question is: Are the central banks to blame for the current inflation episode?
To be in with a chance of winning up to £500, you must submit your answer by 6 January 2023. Further details on how to enter can be found here.
The November Teacher Seminar is also being hosted at the IEA office. The event will include presentations from IEA researchers on issues related to the academic syllabus. The focus will be on the history of economic thought, whether forecasting makes sense, and the history of the government debt crisis.
The event will take place on 2 November 2022 from 10am–3.30pm. You can find more information on how to sign up here.
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