Is cutting UK taxes ahead of a general election affordable or not? An economist explains
A Conservative government considering tax cuts a few months ahead of an expected general election may not sound very surprising.
- A Conservative government considering tax cuts a few months ahead of an expected general election may not sound very surprising.
- Tax cuts are understandably popular – especially when household incomes have been squeezed by high inflation and rising interest rates.
- Recent figures on UK borrowing led some analysts to suggest that it can.
- Is one month of lower borrowing enough to counter the longer term problems faced by the UK economy?
- Ever since the global financial crisis of 2008, the UK economy has been grappling with stagnated productivity and declining wages.
Growing, growing, gone
- If cuts are financed by borrowing, they are likely to lead to serious repercussions for the economy (just ask the former prime minister Liz Truss).
- But tax cuts driven by spending reductions – such as less money going on government borrowing debts – can have a positive impact.
- Personal tax cuts would also have the simple but attractive benefit of giving workers in any sector a bit more money in their pay packet.
- This lets companies deduct 130% of their investment in business equipment (known as “plant and machinery”) from taxable income.
Abhishek Kumar is affiliated with Centre for Social and Economic Progress (formerly Brookings India), New Delhi.