Faster action is needed on the fiscal crisis, but we also need to keep Britain competitive

Yesterday a letter was published in the Sunday Times from a range of senior economists from the LSE, Harvard, Oxford, Cambridge, NYU, UCL, York,  Birkbeck, the House of Lords and the private sector.  They made it clear that action to curb the deficit needed to be dramatic and start sooner rather than later:


"[In] order to be credible, the government’s goal should be to eliminate the structural current budget deficit over the course of a parliament, and there is a compelling case, all else being equal, for the first measures beginning to take effect in the 2010-11 fiscal year."


They also make it very clear the risks that we're facing if the Government don't outline a credible plan:


"In the absence of a credible plan, there is a risk that a loss of confidence in the UK’s economic policy framework will contribute to higher long-term interest rates and/or currency instability, which could undermine the recovery."


Another story, reported last week in City AM, makes it clear why tax hikes aren't the answer:


"THE head of Diageo yesterday threatened to take his company abroad because of UK tax laws.

Chief executive Paul Walsh said that it was “very difficult” to locate staff in the UK where they could be hit by a 50 per cent tax rate.

He also called for corporation tax to be cut and the tax system streamlined. Diageo employs 6,000 people at its London headquarters.

He said: “We are a global company, we enjoy being headquartered in London, but if the tax regime becomes so egregious, either for corporates or individuals we would have no option but to look at alternatives. The UK has become progressively a less attractive location to base oneself in."


If jobs at Diageo and elsewhere move overseas to avoid punishing tax rates, or the threat of them, then we'll all be worse off and the Government will find it much harder to make ends meet.  The answer to the fiscal crisis has to be spending cuts.  We've done a lot of work on how to cut spending, and we'll be looking at the subject in a lot more detail in our upcoming book How to Cut Public Spending (and still Win an Election).

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