What's worse than an unfunded tax cut? An unfunded spending commitment. At least if you borrow to reduce tax, you have a less sclerotic economy to show for it in the end.
For several years now the debate about tax cuts has been shut down. Whenever anyone so much as hints at the need for lower taxes, up pops a Treasury minister to remind us about the dangers of unfunded tax cuts. See here and here and here.
Unfunded tax cuts would mean higher borrowing, they tell us. It would mean less spending on schools, hospitals, policing and pensioners, apparently. It would mean fiscal imprudence, higher interest rates - and perhaps even the loss of our AAA credit rating.
Except today we learn that it is not unfunded tax cuts that have resulted in any of those things, but unfunded spending commitments. According to the Institute of Fiscal Studies, the Chancellor is now going to have to borrow £64 Billion more than he was intending to before 2015. At the same time, spending on public services may have to be cut sharply.
Just imagine. How might the economy be performing today if, instead of borrowing vast amounts to pay for unfunded spending commitments, we had lowered taxes instead?
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