Adam Smith Inst - Go for Growth and Cut Taxes to Ease the Cost of Living

From: Think Tanks
Published: Wed Mar 23 2022

Provide a one-off cash payment to low-income households, lower taxes, and pursue a pro-growth agenda to ease the cost of living crisis, says think-tank

  • Britain has been plunged into a cost of living crisis, driven by inflation, an increasingly heavy tax burden, and stagnant wages.
  • The impact of this will be felt most acutely by lower-income households. Measures to ease the cost of living should therefore be targeted towards those most in need.
  • The Government should pursue a pro-growth strategy and lower tax and spend in order to reduce government debt and the cost of living.

A new report, Pulling Out All The Stops: How the Government Can Go for Growth and Bring Down the Cost of Living from the Adam Smith Institute (ASI) argues that the Government should provide targeted support to lower-income households, resist calls to raise taxes, and pursue a pro-growth agenda in order to reduce both the cost of living and government debt.

The report's lead author, John Macdonald, highlights that the UK is currently experiencing a deadly combination of inflation and low productivity, leading to spiralling costs and government debt. A greater percentage of pay is now being spent on goods, both as a result of inflation and because taxpayers are retaining less of their money. The Government's high-tax, high-spend agenda will only exacerbate this crisis. The goal instead should be to move towards post-Covid transition to boosting growth; more economic activity leads to increased wages and greater revenue for the Treasury.

The paper outlines a number of measures to cushion the impact of the cost of living crisis and increase economic growth, including targeted support for lower-income households, reducing the tax burden, and reforming childcare regulation to ease the burden on working families.

The report makes the following recommendations:

  1. Consider proposals for a one-off payment to those hit hardest by the rise in the cost of living, rather than pursue more complicated rebate methods.

  2. End the moratorium on fracking so that British businesses have extra time to reach Net Zero by supplying and using this cleaner, cheaper and more efficient form of energy.

  3. Cancel the National Insurance hike to prevent British taxpayers becoming trapped in a low wage, high tax economy. Failing that, increase the threshold for paying employee NI.

  4. Unfreeze tax thresholds, and index them to inflation.

  5. Remove the student loan write-off period, lower the additional interest rate and scrap the proposed lowering of the threshold for re-payments. This would shift the fiscal burden onto the individual who undertook the degree, and would result in a lower default rate.

  6. Relax the staff:child ratio in line with Norway, in order to reduce childcare costs and improve quality of care.

John Macdonald, Director of Strategy at the Adam Smith Institute and report author said:

Pursuing a high spend agenda funded through a heavy tax burden is a fool's errand at the best of times, let alone during a cost of living crisis. Without a growing economy, rising wages and increased business activity, the Government will find themselves trying to take more from less. Now is the time to let people keep more of their own money and focus on driving down unnecessary costs.

Notes to editors:

For further comments or to arrange an interview, contact Emily Fielder, | 0758 477 8207.

John Macdonald is the Director of Strategy at the Adam Smith Institute.

Maxwell Marlow is a Development and Research Officer at the Adam Smith Institute, an MA candidate at the LSE, and a Don Lavoie Fellow at the Mercatus Center, George Mason University.

Charles Bromley-Davenport is a Research Associate at the Adam Smith Institute and Founder of the classical liberal advocacy website

The report is now live on the Adam Smith Institute website and is available here.

The Adam Smith Institute is a free market, neoliberal think tank based in London. It advocates classically liberal public policies to create a richer, freer world.

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