Make tax cuts to boost UK economy, IFS urges

Thursday, 02 February 2012 10:11

The Chancellor George Osborne should consider cutting taxes in the short term to help the economy, according to a leading think tank.

The Institute for Fiscal Studies said that the case for lower taxes was stronger than a year ago.

In its Green Budget, the IFS suggested that a cut to the main rate of VAT, a reduction in employer National Insurance contributions and a boost to investment spending plans would be “sensible choices” for a temporary fiscal stimulus package.

Included in the Green Budget is analysis from Oxford Economics, which forecasts that Britain’s economy will grow by 0.3 per cent this year – lower than the Office for Budget Responsibility’s 0.7 per cent prediction.

It also warned that the ongoing Eurozone debt crisis could impact on economic growth until 2013 and could potentially push the UK into a deep recession. If this were to happen, the Chancellor would have to abandon his economic rules.

But the IFS stressed that while a hefty tax cut could adversely affect investor confidence, the current economic uncertainty meant long term cuts were not an option.

Paul Johnson, director of the IFS, said: “The Chancellor looks to have harder choices than he did a year ago.”

Mr Osborne is due to deliver his Budget on March 21.
 

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