pounds 3bn tax cuts 'could cause spending overshoot'
Monday 20 November 1995
The National Institute of Economic and Social Research is warning against tax cuts even of pounds 3bn, which most political pundits believe is the least the Government can offer in order to win the next general election.
The institute says that cuts at this level would lead to the Government overshooting its key measure of spending by 3 per cent this year. The spending control total, which excludes cyclical social security spending and debt-interest payments, will rise by 2.1 per cent in real terms this year, it says. At the time of the last Budget, a fall of 0.9 per cent was forecast.
The institute says tax cuts might be justified if financed by spending cuts but is sceptical that sufficient reductions can be achieved. It argues that the question the Chancellor should address in the Budget is Britain's savings shortfall. A cut in government borrowing would lead not only to an increase in domestic saving but also to a rise in domestic investment.
The institute expects the Government to miss its inflation target of 2.5 per cent or less next year. It forecasts that underlying inflation - which excludes mortgage interest payments - will run at about 3 per cent at the end of 1996.
Growth in the economy is expected to slow to 2.4 per cent, with growth in domestic demand led by consumer spending and fixed investment. Unemployment will drop by 300,000 next year, partly because of the introduction of the jobseeker's allowance and the eventual impact of the new incapacity benefit.
The institute points out that the most striking aspect of the economy at the moment is that the rate of wage increases has been so subdued despite the sharp fall in unemployment.Real average earnings, it says, are likely to fall by 0.5 per cent in 1995.
By contrast when there was a fall in unemployment of similar size in 1987-88, real average earnings rose by 2.5 to 3 per cent a year. However, it cautions that part-time working has increased and unemployment among men is still close to 10 per cent, according to the Labour Force Survey.
- 1 I was a Woman Against Feminism too
- 2 Is Gideon Levy the most hated man in Israel or just the most heroic?
- 3 Students offered grants if they tweet pro-Israeli propaganda
- 4 The Tory donor whose firm is one of Britain’s biggest tax avoiders - with HMRC's blessing
- 5 John Barrowman praised for Commonwealth Games opening ceremony gay kiss
Vladimir Putin employs a full-time food taster to ensure his meals aren't poisoned
Peaches Geldof: Her final day – and her fatal decision
Students offered grants if they tweet pro-Israeli propaganda
Israel-Gaza conflict: Israel may have committed war crimes, says UN human rights chief
Peaches Geldof inquest: Tragic final days of mother-of-two's life reveal she lied to husband about failed heroin tests
Malaysia Airlines MH17 crash: Vladimir Putin is given 'one last chance' to end hostilities in Ukraine
The 'scroungers’ fight back: The welfare claimants battling to alter stereotypes
The truth about conspiracy theories is that some require considering
Malaysia Airlines MH17 crash: Ukrainian military jet was flying close to passenger plane before it was shot down, says Russian officer
Malaysia Airlines MH17 crash: Massive rise in sale of British arms to Russia
Malaysia Airlines MH17 crash: victims’ bodies bundled in black bags and loaded onto trains
iJobs Money & Business
competitive: Progressive Recruitment: This really is a fantastic chance to joi...
£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...
£60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Business Anal...
Negotiable: Harrington Starr: Market Administrator (1st line Support, Bloomber...