Our Ideas Updates

Updated Mar 2014

Tax & Spending

Public debt should be reduced as a percentage of GDP over the medium term.

However, we propose an new mechanism:

'deficit reduction averaging' would provide more responsive policymaking in place of the current, inflexible target

Deficit reduction averaging would vary the pace of debt reduction automatically to bring it down more quickly when the economy is growing and less quickly when the economy is struggling.

READ MORE: Deficit Reduction Averaging: A Plan B for fiscal tightening

Reducing public debt should be achieved through a combination of spending cuts and tax rises.

We believe

plans for all of the deficit reduction occurring in the next parliament to be achieved through spending cuts are unfair and unsustainable

Tax income will have to make a larger contribution to overall deficit reduction than is currently planned. Rises in major sources of revenue such as income tax and VAT are politically unfeasible. So any tax rises must be targeted, and not hold back enterprise and growth.

We support

an international financial transaction tax, on trades of derivatives and other financial products

In effect, this is an extension of the stamp duty that applies to trades of UK shares and property.

Today, inequality of wealth, which includes assets like property, is greater than inequality of income. A land value tax would be more universal than a narrower alternative such as a 'mansion tax'.

We support

a land value tax, which recognises that the value of land is increased by services that are provided by the state and local community

Increasing demand for public services is a key factor in the pressure being placed on public finances, and so we support tax changes that are targeted at meeting expected demand.

For example, we propose

an 'NHS tax', set at a level that responds to changes in demand for NHS services and which is reinvested directly into those services

READ MORE: Taxing times: Where might additional tax revenues be found?

We believe

further increases in the personal allowance do little to help the lowest earners

Low earners are already exempt from paying income tax and so most of the gains from this change go to higher earners.

READ MORE: Coalition tax policy

We believe that the current spending review process is not well suited to making sustainable long-term funding decisions.

We propose

each spending review should cover a five-year term, aligned roughly with each five-year parliament, to allow departments and services to plan ahead

For example, the spending review in 2015, following the next general election, should apply from 2016/17 through to 2020/21, to be updated after the 2020 election

In addition, we do not believe it is feasible to exclude major departments like the NHS and schools from the spending review process, with their funding protected.

We believe

the spending ringfence should be removed for all large service areas

Only spending on the Department for International Development should be ringfenced, to preserve our commitment to international aid spending.

Spending decisions should be built up from zero, based on demand, rather than cut down from previous levels, based on an overall reduction target.

We also believe that the spending review process lacks transparency, good information and criteria that look beyond the 'low-hanging fruit' of cost and direct benefit.

READ MORE: Rebalancing the books: How to make the 2015 spending review work for all of Britain

Spending on benefits and pensions makes up the largest part of non-departmental spending, known as annually managed expenditure, or AME.

We support

capping the overall level of AME spending

An overall AME cap prioritises cost-cutting at the right level and drives strategic decision-making about how to control the benefits bill more effectively than a series of ad hoc cuts to individual entitlements.

READ MORE: On the front foot: Designing a welfare cap that reforms social security

Decentralisation is an important part of our work on economic reform.

Devolving some tax and spend powers would enable city and regional authorities with sufficient capabilities, such as the combined authorities, to tailor local incentives and investments to support local enterprise.

We support initiatives such as 'growth earnback' and place-based budgets, which empower local areas and have the potential to create 'virtuous cycles', as local decisions cut local costs or increase local income, allowing reinvestment and further growth.

READ MORE: Northern prosperity is national prosperity: A strategy for revitalising the UK economy

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