Economists Say Rishi’s Claim Tax Reductions Inflationary “Far-Fetched”

Rishi-endorsing City economist Simon French, writing in The Times yesterday, said:

There is no getting away from the fact that proposals for the government to spend more or tax less to support households and businesses will add to inflation. Who these changes benefit will determine how much extra inflation they will generate. More support for poorer households will generate less inflation than similar financial support spread across the income distribution. It is also true, though, that neither candidate’s ideas are going to make a dramatic impact on prices. Events in global energy markets continue to swamp any decisions made domestically.

As even Rishi’s supporters say, events in Ukraine and the impact on energy markets are clearly driving inflation globally, not domestic policy.

Other economists are blunter, Douglas McWilliams at the CEBR tells Guido that Rishi’s claims about Liz’s £30 billion of tax cuts being inflationary are “far-fetched”

First there is a huge amount of fiscal drag. Giving tax cutting headroom. Second, all simulations on the impact of a fiscal policy like this show negligible inflationary impacts. Third, interest rate policy is currently largely driven by the desire to prevent an inflationary collapse of sterling against a background of US policy which has suddenly become too aggressively anti inflationary (money supply has actually fallen in past 6 months). So we will probably end up anyway with a more expansionary fiscal policy to offset the greater monetary tightening than would otherwise be necessary.

The £30 billion of net tax cuts also have to be seen in the context of a £2.2 trillion economy, they would have a negligible effect on inflation even in normal economic conditions. There was some good news yesterday on inflation as US CPI figures showed a small decline. We may be closer to peak inflation than forecasters thought…

mdi-timer 11 August 2022 @ 10:45 11 Aug 2022 @ 10:45 mdi-twitter mdi-facebook mdi-whatsapp mdi-telegram mdi-linkedin mdi-email mdi-comment View Comments