Letter to the editor: Next UK prime minister must avoid a 70s-style wage-price spiral
Miles Dean, Head of International Tax, explains that the next UK prime minister should cut individual and corporate taxes sooner rather than later, in the Financial Times.
Miles’ letter was published in the Financial Times, both online and in print, 15 July 2022, and can be found here.
“Tuesday’s Lex opinion suggests that loosening fiscal policy could stoke inflation and force the Bank of England to push interest rates higher.
“Individual politics usually involve choosing which policies and which party to support. In the Tory leadership race, they centre on a third choice: which politician to support – but only for members of the Conservative Party who will choose our next prime minister.
“Assuming fiscal discipline applies, the politics of government involves making difficult choices, primarily about where and how much to tax and spend: cut taxes and you need to spend less; raise them, or leave them to the ravages of inflation, and others have less to spend. Nowhere are those choices more acute than for the new office-holder of Number 10.
“Given the current cost of living crisis, economists differ about the inflationary impact of cutting taxes right now. In truth, no-one knows for certain. Among the smorgasbord of tax-cutting options being presented by the assorted candidates, Rishi Sunak is certainly the most cautious, making the defeat of inflation his top priority with the prospect of tax cuts being deferred rather than instant.
“But inaction on taxes now creates other risks down the line. If using up fiscal headroom on tax cuts is risky, not implementing them may be even more so – diminishing purchasing power, squeezing demand and increasing the likelihood of recession. Avoiding a 1970s style wage-price spiral is paramount for the new occupant of No 10. But so too is any further 1970s style push on raising the tax burden, which is already at the highest level for 70 years.
“On balance, taxes should be cut sooner rather than later, wherever possible, for both companies and individuals. Choosing otherwise is not prudent, but irresponsible.”