UK Chancellor John Healey warned against "budget for the backbenchers"

UK Chancellor John Healey should avoid delivering a "budget for the backbenchers" with tax rises for businesses and further borrowing, a former Bank of England chief economist has said.

Andy Haldane said he hopes the government will show spending restraint but he expects the autumn statement to instead dip into its fiscal headroom and hike levies, which he warned will be bad news "from a growth perspective".

Haldane explicitly backed the Tories' "smaller-state" policy platform as the likeliest path to growth, arguing that borrowing more could shrink the economy by creating a fear of tax rises that dampens consumer activity.

Speaking in conversation with the National Institute of Economic & Social Research [Niesr] and Ipsos at a pre-budget briefing on Tuesday, the economist also warned against a windfall tax on banks, which he argued could harm investment.

Haldane, who was also reported to have advised Prime Minister Andy Burnham earlier this year, said: "I come at this through a nerdy, technocratic, apolitical lens, but given where we are with a broken public sector balance sheet, but with a pretty healthy private sector balance sheet, this is all about enabling the private sector to drive growth.

"What best achieves that? Taxing the private sector more is not, I think, the route to doing that."

Pointing to Manchester – where Burnham previously served as metro mayor – as an example, he claimed the city's "success was built on being a magnetic attractor of capital, foreign and domestic businesses, people and culture".

He added: "That is the model we should bring when it comes to getting national growth going, to become an… attractor rather than a repeller of people, of businesses, of capital, and of culture, and for me that is the acid test of any political party's economic plans."

Singling out the prospect of windfall taxes on banks, he said: "The harm that's done is that that tells every investor in UK businesses there's a chance that taxman's been for your profits.

"A world in which the taxman takes the upside and investors take the downside is not an environment where investors will want to invest more money.

"That's why the stakes are high, and that's why I hope that is the lens that the chancellor and prime minister take to this budget, how to make the UK longer term more investable, not less – the place to do business rather than the place to repel it."

Expanding on an argument set out in an op-ed for the Financial Times on Tuesday, Haldane said Conservative proposals for a smaller state offered the better chance of boosting growth.

"My hope is that this is a budget for business and for bond markets, in other words the government signals voluntarily restraint on government spending and chooses voluntarily not to raise taxes on households or on businesses," Haldane said.

"That would be the best thing they can do to get growth going. That is my hope. It is not my expectation.

"My expectation is that we will see some further borrowing through dipping into headroom… We will see some further tax rises, and neither of those, I think, are good news from a growth perspective.

"Or put in a nutshell, I expect a budget for the backbenchers rather than for business or the bond markets."

It comes as joint research from Ipsos and Niesr suggests more than half of Britons – 52% – fear financial markets could severely lose confidence in the government's ability to pay back debt ahead of the autumn statement.

Some 65% of British adults expect the chancellor to announce tax increases on October 28, alongside 51% who anticipate increased government borrowing, according to polling published on Tuesday.

But the public are divided on how to tackle debt, with 35% preferring a cut in borrowing even if it means less spending on public services, while another 35% would prefer slashing personal taxes even if it means service reductions, the data suggests.

By Press Association Political Staff

Press Association: News

source: PA

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