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Reduce Tax by 5% & Boost Economy by £23BN Per Year

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AsleepInYorkshire
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Reduce Tax by 5% & Boost Economy by £23BN Per Year

#476112

Postby AsleepInYorkshire » January 25th, 2022, 5:23 pm

Rishi Sunak told (advised) cut income tax by 5p and boost economy by £23billion each year

Lead author Professor Patrick Minford of Cardiff Business School said: "We must close our ears to the voices of gloom that urge the need to raise taxes and cut spending to reduce the Covid debt. That way lies only a downward spiral of falling growth and a rising debt ratio - a doom loop of stagnation, austerity and worsening public finances."

According to the above article Prof. Minford was one of the most influential economists of the Thatcher era. I'm by no means an economist but feel he may have a reasonably decent plan, although wouldn't it be better to cut VAT by 5%?

Do we need to be very careful that we don't wander into stagnation as Japan did in the 90's?

AiY(D)

gryffron
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Re: Reduce Tax by 5% & Boost Economy by £23BN Per Year

#476143

Postby gryffron » January 25th, 2022, 6:45 pm

Whether govt spending or tax cuts are the best way to stimulate the economy is one of the oldest arguments in economics.

I'm dubious either is particularly successful if you have an economy where a huge proportion is imported. If that's the case, as it is very much in both UK and USA, then pumping more money into the economy, no matter how it is done, will simply stimulate more imports.

I'd choose targeted VAT cuts to services that cannot be imported. Hotels, restaurants, theatres, pubs, clubs and other local service sector industries. And thus encourage Brits (and foreign visitors) to spend more of their money here in the UK.

Gryff

GeoffF100
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Re: Reduce Tax by 5% & Boost Economy by £23BN Per Year

#476151

Postby GeoffF100 » January 25th, 2022, 6:58 pm

Inflation is starting to roar away. We need to take money out of the economy, not put it in.

stevensfo
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Re: Reduce Tax by 5% & Boost Economy by £23BN Per Year

#476162

Postby stevensfo » January 25th, 2022, 7:37 pm

gryffron wrote:Whether govt spending or tax cuts are the best way to stimulate the economy is one of the oldest arguments in economics.

I'm dubious either is particularly successful if you have an economy where a huge proportion is imported. If that's the case, as it is very much in both UK and USA, then pumping more money into the economy, no matter how it is done, will simply stimulate more imports.

I'd choose targeted VAT cuts to services that cannot be imported. Hotels, restaurants, theatres, pubs, clubs and other local service sector industries. And thus encourage Brits (and foreign visitors) to spend more of their money here in the UK.

Gryff


But what incentive is there for these industries to lower their prices when the VAT rate goes down? Aren't they more likely to simply keep prices the same and increase profits?

I agree, not easy. I remember decades ago, hearing about an income tax reduction and a relative shrugging and saying, "just means they'll give less to the local authorities, so the councils will put the bloody rates (council tax) up again!" 8-)

Steve

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Re: Reduce Tax by 5% & Boost Economy by £23BN Per Year

#476163

Postby Lootman » January 25th, 2022, 7:41 pm

A 5% cut in income tax would only take the highest rate (currently 45%) down to the level it was for many years before Brown raised it as part of his response to the financial crisis. By way of contrast the highest rate of federal income tax in the US is 37%.

So the idea hardly justified hysteria amongst its opponents.

ursaminortaur
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Re: Reduce Tax by 5% & Boost Economy by £23BN Per Year

#476217

Postby ursaminortaur » January 26th, 2022, 2:05 am

AsleepInYorkshire wrote:Rishi Sunak told (advised) cut income tax by 5p and boost economy by £23billion each year

Lead author Professor Patrick Minford of Cardiff Business School said: "We must close our ears to the voices of gloom that urge the need to raise taxes and cut spending to reduce the Covid debt. That way lies only a downward spiral of falling growth and a rising debt ratio - a doom loop of stagnation, austerity and worsening public finances."

According to the above article Prof. Minford was one of the most influential economists of the Thatcher era. I'm by no means an economist but feel he may have a reasonably decent plan, although wouldn't it be better to cut VAT by 5%?

Do we need to be very careful that we don't wander into stagnation as Japan did in the 90's?

AiY(D)


Minford was the most prominent of the small group of "Economists for Brexit" - he admitted though that the policies he espoused for brexit would destroy the UK manufacturing and agriculture sectors.

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Re: Reduce Tax by 5% & Boost Economy by £23BN Per Year

#477412

Postby Gilgongo » January 31st, 2022, 8:03 am

Whether or not the miraculous "trickle-down effect" ever occurs in the fiscal economy, maybe it's just a coincidence that after 40 years of Minford's low-tax/spending and deregulating/privatisation "free market" policies, we've seen society, education, infrastructure and services decline while wealth disparity and poverty have soared.

Tax cuts? No thanks.

DrFfybes
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Re: Reduce Tax by 5% & Boost Economy by £23BN Per Year

#477426

Postby DrFfybes » January 31st, 2022, 9:02 am

stevensfo wrote:
gryffron wrote:I'd choose targeted VAT cuts to services that cannot be imported. Hotels, restaurants, theatres, pubs, clubs and other local service sector industries. And thus encourage Brits (and foreign visitors) to spend more of their money here in the UK.

Gryff


But what incentive is there for these industries to lower their prices when the VAT rate goes down? Aren't they more likely to simply keep prices the same and increase profits?

Steve


They probably won't lower their prices, but they will be able to absorb inflation, or make more profit, so will pay more tax, perhaps pay their staff more, but more importantly they will hae more cash to spend in the economy. Probaby on iphones, TVs, and other imported goods :(

Paul

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Re: Reduce Tax by 5% & Boost Economy by £23BN Per Year

#477517

Postby stevensfo » January 31st, 2022, 1:48 pm

DrFfybes wrote:
stevensfo wrote:
gryffron wrote:I'd choose targeted VAT cuts to services that cannot be imported. Hotels, restaurants, theatres, pubs, clubs and other local service sector industries. And thus encourage Brits (and foreign visitors) to spend more of their money here in the UK.

Gryff


But what incentive is there for these industries to lower their prices when the VAT rate goes down? Aren't they more likely to simply keep prices the same and increase profits?

Steve


They probably won't lower their prices, but they will be able to absorb inflation, or make more profit, so will pay more tax, perhaps pay their staff more, but more importantly they will hae more cash to spend in the economy. Probaby on iphones, TVs, and other imported goods :(

Paul


Yep. No doubt all made in China! No wonder they can afford the tech, face-recognition cameras and AI to spy on their citizens! :cry:

Steve

PS Not that I doubt for a second our lords and masters are itching to do it here as well! :evil:

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Re: Reduce Tax by 5% & Boost Economy by £23BN Per Year

#477525

Postby Lootman » January 31st, 2022, 2:05 pm

Gilgongo wrote:wealth disparity and poverty have soared.

Have they? Are you sure?

I don't think many people would want to go back to the way things were before Thatcher, Minford, Lawson etc. Most voters today are not old enough to know first hand how bad things were when Callaghan was PM. I am.

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Re: Reduce Tax by 5% & Boost Economy by £23BN Per Year

#477541

Postby dealtn » January 31st, 2022, 2:35 pm

Gilgongo wrote:Whether or not the miraculous "trickle-down effect" ever occurs in the fiscal economy, maybe it's just a coincidence that after 40 years of Minford's low-tax/spending and deregulating/privatisation "free market" policies, we've seen society, education, infrastructure and services decline while wealth disparity and poverty have soared.

Tax cuts? No thanks.


Really? Rather than cheap words can you provide some actual data or links to back up your claims?

Can't say I have noticed falls in education or infrastructure. We appear to be spending ever more on both, and getting more too. Care to explain what it actually is that concerns you. As for services that sector has continued to boom and take a higher share of the economy.

What is this "poverty" that has soared? Hard to reconcile that as an absolute measure so presumably you are talking about a relative measure.

The most commonly used measure of inequality is the gini coefficent. For much of that 40 year period it has been fluctuating but relatively constant. That first 10 years, under Thatcher, that saw the rapid rise was as much as the rich getting wealthier as less tax was taken, than the poor getting poorer. Indeed once Unemployment turned the poor were assisted greatly.

https://www.statista.com/statistics/872 ... d-kingdom/

What concerns the poorest most? Is it the size of the pie, the size of their portion relative to before, or the fraction of the pie that is theirs?

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Re: Reduce Tax by 5% & Boost Economy by £23BN Per Year

#477627

Postby Gilgongo » January 31st, 2022, 7:22 pm

dealtn wrote:Care to explain what it actually is that concerns you


Lootman wrote:I don't think many people would want to go back to the way things were before Thatcher, Minford, Lawson etc. Most voters today are not old enough to know first hand how bad things were when Callaghan was PM. I am.


These are matters for a separate thread. Suffice to say that if increasing tax cuts were to unleash mass prosperity, then I think 40 years of the same might be long enough to start to expect some uplift from that policy in term of things like welfare, pensions, disposable income, home ownership and poverty. As it is, you can choose any of those and see that for MOST people, these have increasingly been pointing in the wrong direction over that time:

https://www.ons.gov.uk/economy/grossdom ... /crxz/ukea (plot a trend line on that - it's significantly down)

https://moneyfacts.co.uk/news/retiremen ... toric-low/

https://www.ons.gov.uk/peoplepopulation ... 2015-01-22

https://www.statista.com/statistics/382 ... ank-users/

https://www.ippr.org/news-and-media/pre ... challenges

https://www.ntu.ac.uk/about-us/news/new ... ta-reveals

I realise British Rail sandwiches under Callaghan were awful, and that sometimes bin men went on strike. I can also imagine NHS glasses were ugly and the fact that you couldn't get focaccia on the high street was unbearable too :)

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Re: Reduce Tax by 5% & Boost Economy by £23BN Per Year

#477629

Postby Lootman » January 31st, 2022, 7:49 pm

Gilgongo wrote:
dealtn wrote:Care to explain what it actually is that concerns you

Lootman wrote:I don't think many people would want to go back to the way things were before Thatcher, Minford, Lawson etc. Most voters today are not old enough to know first hand how bad things were when Callaghan was PM. I am.

These are matters for a separate thread. Suffice to say that if increasing tax cuts were to unleash mass prosperity, then I think 40 years of the same might be long enough to start to expect some uplift from that policy . .

I think you will find that the majority of people on this site are vastly better off as a result of Thatcherism 40 years ago. I started work in 1975 and back then it was very difficult to imagine that I would have achieved the prosperity that I have, if the policies of 1945 to 1979 had remained in place.

In fact I would go as far as to suggest that I probably would have emigrated decades ago but for the Thatcher revolution.

Whether it is "mass" prosperity or merely extensive prosperity, I will leave to those more pedantic than I. But as I said before, not many people today would choose the economic conditions of the 1970s voluntarily. And they tell us that every election.

Gilgongo wrote:I realise British Rail sandwiches under Callaghan were awful, and that sometimes bin men went on strike. I can also imagine NHS glasses were ugly and the fact that you couldn't get focaccia on the high street was unbearable too :)

The BR sandwiches hark back to a day when all kinds of businesses were run as government departments, so it is not surprising that the catering on trains is better now. Or at least I assume so; I never consume it.

But the image I recall of the 1970s is the three-day week, the perpetual sterling crises and balance of payments deficits, endless strikes (with British Coal and British Leyland being only the worst examples), the brain drain, 98% tax rates and begging letters to the IMF. Crisis, what crisis?

You want that again?

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Re: Reduce Tax by 5% & Boost Economy by £23BN Per Year

#477700

Postby dealtn » February 1st, 2022, 9:17 am

Gilgongo wrote:
dealtn wrote:Care to explain what it actually is that concerns you




These are matters for a separate thread. Suffice to say that if increasing tax cuts were to unleash mass prosperity, then I think 40 years of the same might be long enough to start to expect some uplift from that policy

https://www.ons.gov.uk/economy/grossdom ... /crxz/ukea (plot a trend line on that - it's significantly down)

https://moneyfacts.co.uk/news/retiremen ... toric-low/

https://www.ons.gov.uk/peoplepopulation ... 2015-01-22

https://www.statista.com/statistics/382 ... ank-users/

https://www.ippr.org/news-and-media/pre ... challenges

https://www.ntu.ac.uk/about-us/news/new ... ta-reveals



i think we'd both agree it's complicated.

However, and attack on the policies of tax cuts over a 40 year period is odd, when for much of that period, particularly the most recent, there hasn't been a tax cut policy. In fact the reverse. The percentage of the UK economy covered by tax is towards historic highs.

Your links show a long run of above zero growth - despite much of it not being under that monetarist tax cutting policy. We don't have the equivalent parallel universe of an alternative policy to compare it to, but it's not obviously disastrous.

Your next link blames low annuity rates on extreme tax cuts in the 80s. Not sure the connection but a more obvious one surely is low interest rates.

Next a graph of house price growth of which monetarism covers perhaps the first third. The middle third presided over by a non-monetarist Labour chancellor displays greater growth, with the final third covering a period of non-monetarism and extreme low interest rates.

Your foodbank link covers none of the period of Thatcher and monetarism. If you were to calculate a corelation between tax levels and foodbank use it would likely demonstrate tax rises and foodbank use going in the same direction. It would be an extreme to position to claim causation, but to claim the opposite would be problematic I suggest.

Link 5 specifically compares the immediate post monetarism period with the current one. Hard to establish an argument against monetarism here othr than to suggest the longer since it has been abandoned the worse it has got for certain sections of the society. Again though causation would be an extreme position, but if anything the evidence (poor though it is) goes against the argument that tax cuts are demonstrably a bad thing.

Your final link shows that poor people spend more than they earn. Not exactly news, but consider if reducing taxes, supply side reforms, reducing the states influence on the economy might allow them to have more disposable incomes, earn more, have more jobs to choose from etc. I would suggest more could be made of the argument about the level of state spending in the welfare system being a greater factor here than lower marginal tax rates as a micro incentive to people to work.

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Re: Reduce Tax by 5% & Boost Economy by £23BN Per Year

#478072

Postby Charlottesquare » February 2nd, 2022, 2:49 pm

Lootman wrote:A 5% cut in income tax would only take the highest rate (currently 45%) down to the level it was for many years before Brown raised it as part of his response to the financial crisis. By way of contrast the highest rate of federal income tax in the US is 37%.

So the idea hardly justified hysteria amongst its opponents.


Highest rate when coupled with personal allowance withdrawal is actually 60% at £100,000 to £125,140, if Rishi wants to do anything he can eliminate that daft anomaly.

https://www.gov.uk/income-tax-rates/income-over-100000


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