A cohort of well-respected figures, including MPs and economists, have written to the Chancellor of the Exchequer proposing more fiscally responsible responses to the current economic downturn caused by the coronavirus pandemic.
The letter, which was instigated by the Institute of Economic Affairs, a think tank known for their pro-market economic stance, suggested that Chancellor Rishi Sunak follow some of the policies that have inspired economic growth in the past.
They particularly highlighted the success of policies that were in place from 1993 until 2003 as the model for success. Over that decade, real public sector revenue grew by an average of 4.3 percent per year, resulting in government income increasing by 51 percent in just 10 years.
The IEA suggested a number of solutions for the Government to consider, including cutting the top rate of income tax to 40%. They also referred to the fall in corporation tax from 33% in 1993 to 19% today, with rate steadily falling over a period of time.
Additionally, they recommend limiting the highest rate of Stamp Duty on residential property to no more than 4% and fixing the VAT rate at 17.5%.
They also suggest cutting regulations on businesses. This includes “less financial regulation, less labour market regulation, more targeted health and safety regulation, less energy sector regulation”.
They wrote in the letter: “The Chancellor and his colleagues at HM Treasury face two major and very difficult-to-resolve issues: highly-stressed public finances, and a lack of labour productivity growth (leading to stagnant real wages and living standards). There are other pressing economic issues, but these stand out as secular, rather than exclusively Covid-19 related.
“Conditions for growth are not a mystery: we have seen them in the UK in the recent past. In the last 40 years, the highest period of growth of government revenue was 1993-2003. This coincided with a period of strong GDP per capita and productivity growth.”
The list of signatories included the MPs Steve Baker, Andrew Lewer and Greg Smith. Former MP and MEP Douglas Carswell and Daniel Hannan respectively also signed the letter.