Usually when I make recommendations, I aim to propose measures that will be palatable to policy-makers, things that they might actually be tempted to do.  But on this occasion, here are five things that I think should be in the Budget – regardless of how likely it is that they might happen.

  1. Cut NHS spending.  Cutting other departments, as we have done, by 20% and more, whilst leaving the bloated NHS budget intact, which rose one third over the last parliament, and indeed by nearly one fifth even after the financial crisis is intellectually and morally absurd and indefensible.  The government is now committed to making some £30bn of unspecified further spending cuts during the next Parliament.  The only big budgets left to cut are health and education.  So it's going to happen soon.  It should be happening now.
  2. Abandon the plan to raise taxes on middle earners with children – a measure misleadingly described as "abolishing child benefit for those with incomes above £40,000".  Child benefit is a tax rebate – both as a matter of history and of formal treatment in government accounts.  It is not, and never has been, a welfare benefit, and it is simply mendacious for the government to now treat it as such – as if child benefit were some kind of charitable handout to the wealthy, instead of being a very modest tax rebate to (considerably under-) recognise that the costs of rearing children reduce the ability to pay tax.  If taxes are to be raised on those earning above £40,000 (and I observe that the average full-time male income is now above £37,000), why should such tax rises focus on those with children – a group already markedly over-taxed relative to their childless peers?  Indeed, quite the reverse should happen – we should introduce child tax credits of the sort used in most tax systems around the world, making tax proportionate to the ability to pay, funded by tax rate rises.
  3. Announce a phased rise in the basic rate of income tax to 25p, paired with a rise in the personal allowance.  There should be an announced policy goal that the personal allowance be raised to the point at which only half the earning population pays income tax.  There should be only one higher rate.  If the child tax credits proposed above are introduced, and since cutting the 50p rate is unattractive, that higher rate might perhaps eventually be 50p – but then cut later back to 40p.  Two rates: 25p and 40p.  The Lawson rate structure was the correct one.
  4. Announce relaxation on restrictions of profit-making and price competition amongst schools and hospitals.  We desperately need higher productivity growth in the public sector, to match private sector productivity growth.  The way to raise public sector productivity growth toward private sector growth is to (a) restrict budgets; and (b) use private sector methods: competition and profit-seeking.
  5. Announce the creation of a tolerance band around the inflation target, together with an intention to enforce the inflation target.  State explicitly that if inflation goes outside the tolerance band, the Chancellor will initially publicly challenge the policy, and subsequently take action such as dismissing those members of the MPC that opposed the monetary policy changes that might have brought inflation back towards target.  We desperately need to restore credibility in the UK's monetary policy framework, if we are to get through the inflationary challenges to come.  In the Budget, publicly invite the Bank of England to suggest its view as to the natural rate of interest for the UK economy at present, and to sketch out a pathway to returning interest rates to that natural rate as quickly as is feasible given other economic constraints.