Policy Exchange have an excellent new report by Andrew Lilico and Hiba Sameen out today on how taxes affect economic growth. Some of the results they've produced with the Oxford Economics model - chosen because it is a lot like the Treasury one - are a bit implausible, as the authors themselves acknowledge in the report. But the analysis yields some fascinating insights, here are the key points:
1. The hike in Employer's National Insurance announced at the Budget could be disastrous for jobs. We have an advantage in keeping unemployment down thanks to our labour market flexibility relative to our European peers, but big hikes in the tax on jobs will undermine that. Here is a key paragraph in the report:
2. The TPA have been campaigning against hikes in VAT, which is a big tax on the poor. The report highlights that the economic case for VAT as a relatively efficient tax may be a lot weaker than it used to be:
3. Taxes overall are a major drag on growth:
For more, read the full report.
The debate over the economic merits of a VAT hike will continue, some people at the launch today expressed scepticism over that part of the report's findings, but the social effects of increasing VAT rates or removing exemptions are clear. Increasing tax on the poor will mean greater poverty and benefit dependency. The report offers further confirmation that, after a decade of tax hikes, any tax rises are going to have serious economic and/or social effects. That's why we need big spending cuts instead.