IEA responds to Chancellor Rishi Sunaks statement

From: Think Tanks
Published: Fri May 27 2022

Mark Littlewood, Director General at free market think tank the Institute of Economic Affairs, commented on Chancellor Rishi Sunak's Economy and Cost of Living Statement'

The worst way to make policy is to oppose something half-heartedly in principle, then procrastinate and finally change position as a result of political expediency. It is painfully obvious that in the battle of ideas, the government enters the arena wholly unarmed.

Rachel Reeves, the Shadow Chancellor, is right to say that this represents a policy victory for Labour. The default setting of the Conservatives now is to respond to virtually any problem by increasing taxes and spending even more money. The appetite and ability of the government to lower taxation or reduce the regulatory burden on businesses is approximately zero. The consequence will be a prolonged cost of living crisis and woefully disappointing economic growth.

Commenting on measures to ease the cost of living, IEA Head of Public Policy, Matthew Lesh, said:

The state is not the solution to the cost of living crisis, it is a key part of the problem: planning restrictions that push up the housing costs, cumbersome red tape that make childcare more extensive and tariffs, and quotas that restrict food imports.

Support measures will help alleviate some of the rising cost of living - though we should question the lack of targeting. The money spent subsidising the energy bills of wealthier households could go much further supporting poorer families.

Rishi rightly highlighted the importance of supply side reform, but measures on this front are lacklustre. Ambitious regulatory reform is what's necessary to boost the supply side capacity of the economy and lower prices for consumers.

Commenting on the Energy Profits Levy (windfall tax), IEA Chief Operating Officer and energy analyst, Andy Mayer, said:

The partygate deflection tax on energy companies is a mistake. Unplanned and complex taxation risks damaging business confidence and investment decisions. Why bother investing in the UK economy if when you make a profit it risks being taken away from you on a whim?

Relief for billpayers and targeted support are welcome, but could be funded by borrowing or by higher than expected tax revenues.

Investment incentives are a money merry-go-round, taking with one hand and giving with another, while adding administrative complexity. The incentives will either reward companies for doing what they would do anyway, or have unintended punitive impacts. Generally, it will make the operating environment more complex, unstable and unattractive.

This sacrifices long-term solutions to the energy crisis for short term headlines and may lead to wider mistrust as other fortunate' industries fear future surprise taxation.

Notes to editors

Contact: / 07715 942731

IEA spokespeople are available for interview and further comment.

Millions of most vulnerable households will receive 1,200 of help with cost of living

Company: Think Tanks

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