U.K. Chancellor of the Exchequer George Osborne must urgently consider funded tax cuts and deregulation to boost the economy and ensure his budget deficit reduction targets are met, the Centre for Policy Studies, a local think tank, said Thursday.
Tim Knox, the director of CPS, said the U.K.'s current low growth rates are threatening the government's efforts to eliminate the structural deficit by 2015 with its program of GBP111 billion in spending cuts and tax rises.
"Fast action is needed now. Cutting tax on enterprise will give the best boost to the economy," he said in a statement.
Ryan Bourne, the CPS researcher who wrote the report entitled "Adrenalin Now - Funded, Popular Tax Cuts To Boost The Economy," identifies more than GBP14 billion of savings that could then be used for targeted tax cuts.
To make those savings the CPS says the government should end pension tax relief for higher rate payers, abolish contracting out the state second pension, cut international aid to 2010/11 spending, and end the 25% tax-free lump sum entitlement from pensions.
The savings could then be used to reduce employers' national insurance contributions, cut the main rate of corporation tax by four percentage points to 21% for the 2012/13 financial year, scrap the top income tax rate of 50% for high earners, and increase income tax personal allowance, the think tank said.
Polling carried out by ComRes for the CPS showed many of these measures would be popular with the public, with 47% of people saying they would prefer the government used targeted tax cuts to stimulate growth, compared with 34% who would prefer a rise in public spending.
Osborne has said the government will stick to its austerity program, calling it the rock of stability on which the recovery depends, but weak growth has increased the pressure for him to do more. Bank of England Governor Mervyn King said last week that the U.K. is in the grip of what could be the most serious financial crisis ever.
"With monetary policy near exhaustion and fiscal policy constrained, easing the tax burden and deregulating our economy are the best means of kick-starting our economy," Bourne said. "The nature of current crises means these tax cuts must be funded, and beginning to reform pensions whilst trimming international aid are the clearest areas where savings could be readily made."
-By Nicholas Winning, Dow Jones Newswires, +44 207 842 9498; [email protected]