Sunday 24 / November / 2024
London: Taxes that have been increased significantly by the current government of the United Kingdom (UK) have destroyed the country’s long-term growth prospects, a leading British economist told Xinhua.
“The big mistake made by the government (of Prime Minister Rishi Sunak) was raising corporation tax, which is a very critical tax for business confidence and incentives, and also panicking about the debt situation,” Professor Patrick Minford, a macroeconomist at Cardiff Business School of Cardiff University, said in a recent interview.
He said the government was thinking very short term about trying to get debt down by raising taxes, instead of hanging tough on taxes, keeping taxes low in order to rebuild long-term growth.
Official figures showed the UK general government gross debt was more than 2,600 billion British pounds (3,309 billion U.S. dollars) at the end of the second quarter (April to June) of 2023, equal to 101.2 percent of gross domestic product (GDP).
The failure to index the income tax thresholds, which has pushed more and more people into very high marginal tax rates, also seriously damaged business incentives, Minford said.
Minford said it makes no sense to sacrifice all kinds of incentives for growth to the debt. Bringing down the debt “has to be done through growth and sensible policies that keep the economy growing, because only through growth do you get the revenues you need to keep the economy in good shape,” he said.
Talking about the UK’s soaring inflation in the past two years, Minford was critical of the central bank. He said the inflation was a result of the Bank of England’s (BoE) major mistake in over-egging the money supply during COVID. “And that caused quite a bad inflation here, aided by commodity price rises, which were internationally driven,” he said.
In November, the UK’s inflation dropped to 3.9 percent, the lowest rate since September 2021 and down from a 41-year high of 11.1 percent in October 2022.
To cool inflation, the central bank has carried out 14 consecutive rate hikes since December 2021, bringing the basic interest rate to a 15-year high of 5.25 percent. However, the 3.9 percent inflation rate is still almost double the BoE’s 2 percent target.
The central bank “went from being much too stimulative to really being extremely contractionary and even driving the money supply into negative growth in recent months, which has been quite dangerous,” Minford said.
Stressing the need to get back to monetary stability, Minford said: “Inflation was coming down anyway. And the big danger, if you push credit and money growth into the negative year on year, you risk another financial crisis that will be much more serious.”
Despite that, he said the UK economy has more or less held up. “In the last quarter of 2023, it’s shown some slight decline, but it’s now recovering again. It does seem to be quite resilient, and inflation has come down sharply, which is very reassuring.”
Looking forward, the professor said the prospects for economic growth in 2024 depend on the Bank of England and also on the government.
If the government cuts taxes in the Spring Budget, the next fiscal plan to be announced in March 2024, reversing the damaging tax increases, the UK’s economic environment would see “quite a change,” he said.
