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IEA - Lower borrowing leaves room for tax cuts
Julian Jessop, Economics Fellow at the free market think tank, the Institute of Economic Affairs, commented on July’s public sector finance report
“Government borrowing continues to undershoot the official forecasts (by £11.3 billion so far this year), raising hopes that there may be more room for tax cuts than previously thought. But the outlook is unusually uncertain.
“Higher inflation will boost spending on the state pension and benefits, while higher interest rates will increase the cost of servicing debt. This will limit the room for permanent tax cuts, without matching cuts in other spending.
“But there will be some other offsets. The higher levels of wages, profits and prices will also boost tax revenues. And the most important component of ‘debt interest payable’ is the RPI uplift on the principal value of index-linked government bonds, which has now peaked.
“The bigger picture is that borrowing and debt are both still very high, and the Chancellor’s current fiscal rules leave him little wriggle room. Nonetheless, the best way to fix the public finances is to grow the economy, and tax cuts could still be part of the solution.”
Notes to Editors
Contact: media@iea.org.uk / 07763 365520
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.
