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TPA

"Can tax increases solve the United Kingdom's public finance crisis?"(PDF)

Authors: The Taxpayers' Alliance and Centre for Economics and Business Research

Publication date: July 2009

This report belies the popular belief that only tax increases will solve the UK's public finance crisis. The authors use three different models – an optimistic model (using the Treasury's figures), a central model (using the CEBR's predictions) and a pessimistic model (assuming there will be little economic recovery over the next five years) to calibrate the likely budget deficit for 2017-18. According to the optimistic model this is likely to be £30billion, the central model suggests it will be £140billion and the pessimistic model predicts £180billion. Under both the central and pessimistic model unemployment is expected to rise above 3million by 2011. The report predicts that public sector spending will need to be cut by £123billion by 2017-18. However the report argues that the 50% top rate of income tax will result in reducing economic growth by 0.4% and raising income and corporation tax across the board will result in a short term boost but will be revenue negative after seven years. The report concludes that higher taxes are not the solution for solving Britain's public finance crisis.

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