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Meanwhile, back in the Real World…..

July 10, 2022 7:01 PM
By Roy Wood

Taxes UK

We will surely be subject to weeks of the Conservative leadership contenders trying to win votes from the affluent, narrow-minded, right-wing members of the Conservative party by promising massive tax cuts.

It is true that Lib Dem policy is for a short-term reduction in VAT, reduction of tax on small businesses and getting rid of the N.I. increase. But these are short-term to support people going through the cost of living crisis.

The Office for Budget Responsibility this week set out the true long-term situation:

Britain's public finances are on an "unsustainable" long-term path with a debt burden that could more than treble without further tax rises to cover the mounting cost of an ageing population and falling fuel duties. If, as expected, economic shocks continue to hit the public finances, debt is on course to reach almost 320% of annual national income (GDP) in 50 years' time - up from 96% now.. The pressures of an ageing population on spending and the loss of existing motoring taxes in a decarbonising economy leaves public debt increasing unsustainably in the long term. If energy prices remain high over the next year and ministers continued extending support, government borrowing would surge by £40bn in 2023-24.

The UK's debt burden has increased by £1tn above forecasts 20 years ago, following a series of economic shocks - and there was no reason to think these would stop. Interest rates are already beginning to rise, increasing government borrowing costs, while an ageing population and increased defence spending add a further burden to Whitehall spending

Undermining claims by some Tory leadership candidates that tax cuts would spur economic activity and improve the outlook, the OBR warned there was no proof of this. "Tax cuts don't pay for themselves and would not improve the long-term financial position. In every case I can think of, when we look at tax cuts, the direct fiscal cost of cutting that tax outweighs the indirect fiscal benefit of improved economic activity."

And, for those who simply suggest increased borrowing, the sobering fact is that, In 2022-23, debt

interest costs will be £83 billion. representing 5.2 percent of total public spending.

Getting taxation right isn't easy, but it needs the kind of mature analysis the OBR provides. Tax policy that is designed simply to attract votes from the Con Party faithful is certainly not what we need.