A Brexit bonanza will open the door to big cuts in personal and business taxes, according to a new analysis of the UK economy prepared by experts who have consistently bucked inaccurate forecasts prepared by gloomy Whitehall officials.
Ahead of the Chancellor’s Spring Statement, in which he is expected to admit for the first time that Brexit is not the disaster long predicted by his officials, leading figures from Economists for Free Trade (EFT) have insisted that Britain will soon be able to ditch George Osborne’s austerity and embrace a programme combining cuts in taxation with balancing rises in spending on key services such as health and education.
EFT – who correctly predicted that the Treasury and the OBR would have to revise their figures – say that from 2020, the Treasury will have a surplus of more than £25 billion a year and rising to play with. This would enable a 2 per cent cut in the 40 per cent top rate of tax and in corporation tax on business profits. It would also create scope for a cut in the punitive “supertax” rate of income tax of 45 per cent. At the same time, the Government would have an extra £14 billion a year to spend on boosting spending on public services.
EFT have a track record of successfully forecasting the post-referendum economy and have consistently been more accurate than Government officials. The economists in EFT are the only ones who have made an objective forecast of Government Brexit policy.
The report, ‘Budget for Brexit Update’, says that previous EFT forecasts debunking “Project Fear” projections remain on track while not threatening debt reduction targets.
“So, our post-Brexit forecast would get our finances into reasonable shape by 2024, permitting the Government to start spending more beforehand without endangering progress to a 60 per cent target by around the middle of the decade. One per cent of GDP per annum could therefore be spent additionally from the 2020 financial year over the succeeding 5 years, while still reaching a 60 per cent debt/GDP ratio in around 2026. This amounts to about £135 billion. Therefore, beginning from the date of Brexit in 2020, some £25 billion extra spending a year could be accommodated, while still reaching the 60 per cent debt/GDP target by the end of 2025.”
Looking further ahead, this £25 billion a year Brexit windfall would rise to £65 billion a year after 2025 while also enabling reductions in the debt target.
The EFT report sets out the widening scope for tax cuts and spending rises as the economy expands after full exit from the EU in 2020:
“From the viewpoint of supply-side incentives, corporation tax and the two top rates are the highest priorities for taxcutting. If corporation tax and the top rate were both cut by 2 per cent in 2025, and the very top rate (to equality with the top rate), the cost would be of the order of £11 billion. Together, with additional spending of £14 billion, a ‘Brexit dividend’ from 2020 of £25 billion would begin to reduce the strains in the public sector and also give a useful boost to competitiveness.
“From 2025, the further dividend of £40 billion per annum could be taken. At this point,
· The standard rate could be cut by 2 per cent, at a cost of £11 billion
· Corporation tax could be cut another 3 per cent, costing another £10 billion
· The top rate could come down by 2 per cent, costing around £3 billion
· The remaining £16 billion could be used on spending”
Commenting on the report, economist Roger Bootle said:
“The UK economy continues to confound all those pessimistic forecasters who saw gloom and doom descending on us after the Brexit vote – and that amounts to nearly every official forecasting organisation, but notably not EFT.
“Remarkably, even though they have been rushing to revise up their forecasts, most forecasters are still too pessimistic. Britain can thrive outside the EU.”
Professor Patrick Minford, Chair of the Economists for Free Trade said:
“In contrast to the Treasury’s own deeply flawed forecasts, the calculations we made last year are on track.
“The UK economy is doing extremely well following the Brexit vote and there are huge economic opportunities that are only possible because of the vote to leave the EU.
“We are nearing the end of austerity and the Government should now look to reward hardworking British people and businesses with tax cuts and investment in key public services.”