NIESR says growth will be lower than OBR forecasts
Downward revisions of growth forecasts for the UK in last week’s Budget do not go far enough, according to the National Institute of Econ- omic and Social Research, which predicts growth will only reach 1.5 per cent in 2011/12.
Figures released by the Office of Budget Responsibility last week downgraded the growth forecast for the UK for 2011/12 from 2.1 per cent to 1.7 per cent and from 2.6 per cent to 2.5 per cent for 2012/13.
But the NIESR says it expects very weak consumer spending growth to drag that down to 1.5 per cent in 2011/12 and 1.8 per cent in 2012/13.
The thinktank’s response to the Budget says: “Such poor consumer spending growth is expected because of dec- lining real incomes this year and a weak housing market both this year and next.”
However, giving evidence to the Treasury select committee on the Budget last week, NIESR director Jonathan Portes said the Budget will improve growth in the medium to long term.
The OBR’s expectations for growth after 2012/13 are slightly more optimistic, remaining the same as last November’s predictions for 2013/14 at 2.9 per cent. It expects growth to be 0.1 per cent higher than previously predicted for 2014/15 and 2015/16 at 2.9 per cent and 2.8 per cent respectively.
The OBR said it expects the savings ratio to stabilise at around 3.5 per cent over the next five years, but the NIESR says it expects continuing retrenchment of household finances to push this up to 7 per cent.
In July, the Government set up the Office of Tax Simplification to look at 155 reliefs and earlier this month it recommended that 47 should be abolished.
In his Budget statement last week, Chancellor George Osborne said: “Following their recommendations, I can announce this Budget abolishes no more than 43 complex reliefs.”
He added that this included the millennium gift aid system “which we will not need for another 989 years”.
But the Institute for Economic Research says the reform does not go far enough.
IEA director general Mark Littlewood says: “He committed himself to simplifying the tax rules but has only eliminated 100 pages from our 10,000-page tax rulebook and has added many more.
“Osborne stated his desire to relieve business from the burden of regulation. But, even by his own numbers, the burden is only being decreased by 0.4 per cent. That is not a slashing of red tape. It is barely even a trim.”
Littlewood welcomes the 2 per cent cut in corporation tax, Osborne’s confirmation that the 50 per cent income tax rate is temporary and the lifting of the income tax threshold by £630 to £8,105 from April 2012 but says these are “small crumbs of comfort”.
He comments: “What the country really needs is much lower taxes across all areas and much less regulation.”
Osborne said he wants Britain to have the most competitive tax system in the G20 but the Adam Smith Institute says switching the indexation of capital gains tax reliefs to CPI rather than the traditionally higher measure of RPI will hold back investment.
ASI executive director Tom Clougherty says: “The coalition’s CGT hike makes Britain a world loser and that can only hold back the capital investment that is vital for economic growth.”
Before last year’s general election, the Conservatives pledged to reverse Labour’s planned 1 per cent rise in National Insurance contrib- utions, which Osborne bran- ded a tax on jobs.
But in last week’s Budget, he failed to do that and Clougherty says raising the cost of employment now is “madness” and will undermine job creation.
He says: “The handful of changes to employment rules are welcome, but these pale into insignificance when compared with the rise in employers’ NI contributions. The Chancellor should have cancelled the rise.”