World

Get out of your groupthink, Rishi Sunak… you CAN lower taxes

Crippling rail hits. British Airways workers vote to go on strike this summer. Teachers demand higher pay. A cost-of-living crisis is high on voters’ lists in Thursday’s by-election.

After these events of the past week, the prime minister urgently needs to come up with a clear economic plan and vision.

Rishi Sunak has already presented a number of financial packages that are gaining ground

4

Rishi Sunak has already presented a number of financial packages that are gaining groundCredit: PA

But at the moment he doesn’t have one – and it shows.

Boris Johnson has to explain that there is no easy way to bring inflation back under control and that the next year or two will be tough.

But at the same time he has to prove that he understands people’s concerns and wants to help.

While eight million vulnerable households are expected to receive £1,200 in government aid this year to help pay their bills, it’s the bruised middle who are also in dire need of help.

Therefore, tax cuts are needed.

Its economic vision must help workers and also be pro-business based on more investment, smarter regulation, lower inflation and lower taxes.

Only then, with stronger growth, will the economy be able to deliver higher productivity and higher wages.

We currently face the twin challenges of runaway inflation and an economic slowdown.

Consumer price inflation is 9.1 percent. It could hit 11 percent this fall if fuel prices pick up again.

Retail price inflation, which drives fares and interest payments on student loans, is even higher.

Rising inflation was partly caused by global factors related to the pandemic and the war in Ukraine.

Such high food and fuel prices could be with us for some time to come.

But a big factor feeding inflation has been loose monetary policy.

Last year the Bank of England printed money like crazy, feeding inflation.

Now it is squeezing the economy through higher interest rates.

So where do wages fit in? Yields increase by 4.2 percent. They are up 8.2 percent in the private sector and 1.6 percent in the public sector.

No wonder so many want a raise.

But are strikes justified? Certainly not when they’re causing widespread disruption like we’ve seen on railroads this week.

While people naturally strive for higher wages, the outcome depends on market conditions and the ability of companies or the government to pay.

The big challenge for Boris Johnson is that he cannot afford the strikers to win.

If this is the case, it can lead to more widespread industrial action.

As inflation takes hold, there is also concern that we will see a self-feeding spiral.

Companies pass on higher costs. Prices are increasing. Workers demand higher wages. And, in turn, costs continue to rise

In the mid-1970s, Labor Prime Minister Harold Wilson tried to get people to understand the inflation challenge.

BROAD INDUSTRIAL MEASURES

A 16-page brochure was sent to each household to send a clear message: “One man’s pay rise isn’t just another man’s price hike: it could also cost him his own job – or his neighbor’s.”

It didn’t work, but it was an important message to convey and one that is relevant to this day.

Importantly, Chancellor Rishi Sunak has already unveiled a number of financial packages that are gaining ground.

That includes an increase in Social Security allowances next month.

These don’t alleviate all the pain, but mitigate the case for aggressive wage increases.

Some unions claim that inflation is being caused by greedy companies pumping up profits. It was not.

But many companies have passed on higher costs. And excess profits in the energy sector have led to a windfall tax.

In fact, the wage share has increased in recent years

The Office for National Statistics shows that the share of wages in the economy’s income has increased to 60 percent in each of the five years since 2016. It’s good.

But almost half of the labor force works in low-wage and low-productivity service industries such as accommodation, retail and catering.

Rising inflation gives the government room for modest wage increases in the public sector.

Without public sector reform, it’s hard to see big pay premiums — and unlikely.

So what else can Rishi Sunak do?

He has already announced timely, temporary and targeted assistance to those most in need, which I have called for.

But he has yet to break out of “groupthink” at the Treasury Department, where they oppose tax cuts.

More can be done to reduce taxes on fuel and energy.

These include reducing VAT, lower fuel taxes and even suspending environmental taxes on energy bills.

The chancellor must also give the tense center a helping hand and cut income tax in the autumn budget in order to boost demand.

And to help businesses, the planned corporate tax hike next spring could be halted.

It is now time for decisive political action. The Bank of England was terrible at controlling inflation. It has to get a grip.

But consumer confidence is at record lows and a recession is likely.

It is therefore imperative that the prime minister reveals his economic vision and the chancellor cuts taxes.

  • dr Gerard Lyons is one of the UK’s leading economists and Chief Economic Strategist at Netwealth. During his time as Mayor of London he was chief economic adviser to Boris Johnson.
Chaos reigns for travelers at London's Heathrow Airport

4

Chaos reigns for travelers at London’s Heathrow AirportCredit: AP
Empty tracks at Waterloo train station as strikes paralyze the country's transport system

4

Empty tracks at Waterloo train station as strikes paralyze the country’s transport systemPhoto credit: Getty
dr Gerard Lyons is one of the UK's leading economists and Chief Economic Strategist at Netwealth

4

dr Gerard Lyons is one of the UK’s leading economists and Chief Economic Strategist at NetwealthPhoto credit: Rex

https://www.the-sun.com/news/5641159/rishi-sunak-cut-taxes-gerard-lyons-2/ Get out of your groupthink, Rishi Sunak… you CAN lower taxes

DevanCole

Daily Nation Today is an automatic aggregator of the all world’s media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials, please contact us by email – admin@dailynationtoday.com. The content will be deleted within 24 hours.

Related Articles

Back to top button