Institute of Economic Affairs argues against raising taxes, saying growth and deregulation will cut borrowing<\/p>\n
Last modified on Sun 2 May 2021 19.03 EDT<\/p>\n
The government should not worry about its rising debt levels, according to an economic thinktank with close links to the Conservative party that was previously a champion of austerity.<\/p>\n
In the latest sign that attitudes to public debt may be shifting, the Institute of Economic Affairs (IEA) on Monday published a paper by two economics professors saying that debt incurred during the coronavirus pandemic \u201ccan be coped with\u201d and arguing against trying to reduce it too quickly.<\/p>\n<\/p>\n
The IEA is generally considered to be one of the UK\u2019s most influential rightwing thinktanks. Boris Johnson has previously been associated with the group, and its analysis directly informed the economic policies of Margaret Thatcher.<\/p>\n
\u201cWe do not wish to downplay the seriousness of the scale of the debt,\u201d wrote the authors, Forrest Capie and Geoffrey Wood, both professors at City, University of London. \u201cClearly steps should be taken by government to curb spending and behave extra prudently. Our central point is that large-scale debt is far from unknown in our economic experience. And it would be misguided and futile to jump to tax-raising measures. The debt can be coped with and the best way of doing that is to encourage economic growth.\u201d<\/p>\n
They also argued it would be \u201cmisguided and futile to jump to tax-raising measures\u201d, instead calling for deregulation and simplifying the tax system. Inflation was a danger if public debt remained high, they said, but it was not inevitable.<\/p>\n
The IEA, which does not disclose its financial backers, has traditionally argued in favour of a smaller state, lower taxes and measures to drive down public debt. <\/p>\n
A 2014 paper by two of its staffers argued that the UK government was facing a \u201cdebt timebomb\u201d. The government\u2019s debt stock, at 76.5% of GDP at that time, was \u201calarming\u201d, the report\u2019s authors wrote. They also flagged a \u201cdebt iceberg\u201d ahead and repeatedly said \u201cunsustainable\u201d levels of UK debt required \u201csignificant spending reductions and reform\u201d.<\/p>\n
However, the Conservative government has spent billions of pounds in its emergency response to the pandemic, causing borrowings to soar. Public sector net debt broke above the 100% of GDP mark in August and remains at levels not seen since the early 1960s, according to official data.<\/p>\n
The rise in spending has prompted the chancellor, Rishi Sunak, to promise higher taxes, including a future rise in corporation tax. The IEA and other rightwing thinktanks have heavily criticised that move, despite backing the emergency pandemic spending.<\/p>\n