Policy Exchange has repeatedly urged that the country’s fiscal problems should be addressed principally by spending cuts, combined with some tax rises. We have recommended a ratio of 80 percent spending cuts to 20 percent tax rises. The “structural” deficit in the UK (i.e. the bit of the total deficit that will still be there once the economy has recovered) is estimated by the Treasury at 9 percent of GDP, or about £125 billion. Not all of that needs to be eliminated quickly, but the vast majority of it does, say £100 billion. So on a ratio of 80:20 our position equates to £80 billion in cuts in underlying spending (spending that isn’t the direct result of the recession) and about £20 billion in tax rises.
The government has already committed itself (albeit without any real detail) to about £38 billion in spending cuts and £19 billion in tax rises. So, essentially, the government has already announced enough tax rises.
Andrew Lilico
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