Fact Service (May 2010)

Issue 18

Tax rises and spending cuts are needed

A triple economic whammy has been outlined by a respected think tank, the National Institute of Economic and Social Research (NIESR).

The basic rate of income tax should be raised by 6p in the pound, VAT at the full rate should be charged on everything except for food and children’s clothes, and another £15 billion of spending cuts will be required to fix the public finances, the NIESR says.

Echoing the government’s arguments against Conservative plans to take £6 billion out of public spending, the researchers say it would be unwise to take that amount of spending power out of the economy this year. Ray Barrell, a senior research fellow at the NIESR says that such a move would cost between 30,000 and 60,000 job losses, and cut growth by between 0.1%-0.2% over the year.

Reducing borrowing further than the current government plans, by a further 2% of GDP, is recommended by the NIESR, and it suggests that raising taxes might be a more effective method of raising the funds. Given the squeeze on spending over the next few years, they suggest income tax could be raised by 6p to do the job.

www.independent.co.uk/news/business/news/huge-tax-hike-and-cuts-needed-says-niesr-1958723.html


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