Majority of advisers urge against tax cuts
Saturday 02 November 1996
All but Professor Patrick Minford of Liverpool University were against substantial tax cuts, and two proposed an immediate fiscal tightening in their pre-Budget advice to Mr Clarke, because of the speed with which the economy is growing.
This contrasts with the widespread view in the City that the Chancellor is preparing to give away pounds 2bn-pounds 3bn in tax cuts to appease anxious backbenchers, probably with 1p off income tax. Some of the panel believe this will happen despite their advice.
The panel's belief that the economy is already growing at a spanking pace and does not need further help was reinforced by the latest purchasing managers' index which rose to an 18-month high in October, the fifth consecutive monthly increase.
The rise from 53.5 in September to 54.5 in October contrasts with subdued indications of manufacturing growth from official statistics. HSBC James Capel said the survey was further justification for this week's rise in interest rates.
Further evidence of a buoyant economy in the run-up to the election came from the Nationwide monthly index of house prices, which rose 0.8 per cent, after seasonal adjustment, between September and October, leaving prices 7.9 per cent higher than a year earlier, the highest annual rate since the recovery began.
A year ago Nationwide said house prices were falling at an annual rate of 3.9 per cent.
Philip Williamson, Nationwide marketing director, said rising prices were "at last being complemented by a stronger trend in house sales". He added that the housing recovery had much further to go.
The report by the Chancellor's independent advisers had little impact on the markets because of the six economists' lack of consensus on the outlook, although they came nearest to agreement on fiscal policy.
In the City some economists claimed after the interest rate cut on Wednesday that the Chancellor was backing the Bank of England's demands for higher interest rates for political reasons, to make it easier to reduce taxes.
Professor Minford called for pounds 4bn in cuts, including 2p off the standard rate of income tax to 22p in the pound. The other five members of the panel recommended varying degrees of tightness in Budget decisions on taxes and public spending.
Kate Barker, of the Confederation of British Industry, said employers wanted tax reductions of at most pounds 1bn and arguably nil. The emphasis should be on cuts in company rather than personal taxes, she added.
Professor Tim Congdon, of Lombard Street Research, called for a combination of tax increases and perhaps public spending cuts to reduce government borrowing.
Martin Weale, of the National Institute of Economic and Social Research, said there was no reason tax increases rather than reductions should lead to a slowdown in economic activity.
On interest rates, which Mr Clarke raised on Wednesday, the panel is divided. While Professor Minford would like to see modest interest rate cuts to ensure that the economic recovery continues, two others argue for higher rates for the Government to meet its inflation target, and the other three say they would not recommend any immediate change.
- 1 'Alien thigh bone' on Mars: Excitement from alien hunters at 'evidence' of extraterrestrial life
- 2 West poised to join forces with President Assad in face of Islamic State
- 3 Mother fed her daughter tapeworms to make her skinny for pageant
- 4 Pamela Anderson rejects ice bucket challenge because of ALS experiments on animals: 'Mice had holes drilled into their skulls'
- 5 ALS ice bucket challenge co-founder Corey Griffin drowns, aged 27
'Alien thigh bone' on Mars: Excitement from alien hunters at 'evidence' of extraterrestrial life
West poised to join forces with President Assad in face of Islamic State
Pamela Anderson rejects ice bucket challenge because of ALS experiments on animals: 'Mice had holes drilled into their skulls'
James Foley 'beheaded': Isis video shows militant with British accent 'execute US journalist' – as hunt begins for killer
ALS ice bucket challenge co-founder Corey Griffin drowns, aged 27
Richard Dawkins on babies with Down Syndrome: 'Abort it and try again – it would be immoral to bring it into the world'
Scottish independence: English people overwhelmingly want Scotland to stay in the UK
Isis threat: Cameron wants an alliance with Iran
Michael Brown shooting: Chaos erupts on the streets of Ferguson after autopsy shows teenager was shot six times – twice in the head
Disgusting, frustrating, but intriguing: how the country really feels about its politicians
Bin bag full of cats' heads discovered near Manchester's Curry Mile
iJobs Money & Business
£30000 - £45000 per annum: Harrington Starr: A global investment management fi...
£65000 - £75000 per annum: Harrington Starr: Senior Network Engineer-(CCIE, CC...
£70000 - £80000 per annum: Harrington Starr: Senior Network Analyst - (CCIE, C...
£60000 - £80000 per annum: Harrington Starr: Senior Network Engineer-(Design, ...