Read the story here. Advertise at Before It's News here.
Profile image
By John Redwood's Diary
Contributor profile | More stories
Story Views
Last hour:
Last 24 hours:

Why we need growth to cut the deficit

% of readers think this story is Fact. Add your two cents.

Let me have another go at explaining the importance of growth  to all those who follow the Treasury/OBR static model. They  say we need to raise a tax every time we spend some more money. They miss the dynamics of growth bringing more  tax revenues and the dangers of higher tax rates slowing growth and cutting them.

In Budget 2021 the Treasury said the deficit for 2021-2 would be £233.9bn. They used this and related forecasts to insist on tax rises for the following year to bring it down. The outturn as reported in Spring Statement 2022 was a deficit of £127.8bn for 2021-2 . So they exaggerated the deficit by £106.9bn . They had made a similar error of overstating the deficit the previous year.

The main reason they got the deficit wrong was they underestimated growth in revenue. The HMRC reported that in 2021-2 total tax revenue rose by a massive 22.9%, far more than the OBR/Treasury model expected. Tax revenue is very sensitive to the growth rate, which outperformed their forecast. They had not put up tax rates that year.

The danger is the OBR/Treasury will lurch from greatly overstating the deficit to understating it as the economy is slowed by higher tax rates, the cost of living squeeze and the monetary tightening now underway. The paradox they need to grasp is higher tax rates could slow growth and so damage the natural growth in tax receipts which you get from a growing economy with a bit of inflation.

The government does need to rein in waste and less necessary spending, but it also needs to promote growth to get fast expanding revenues. 2021-22 shows us that fast growth can come with maintained tax rates and selective tax cuts, clearly assisted by the end of lockdowns. Slow growth or no growth comes from hiking taxes too high, making it more difficult to get the deficit down.


Before It’s News® is a community of individuals who report on what’s going on around them, from all around the world.

Anyone can join.
Anyone can contribute.
Anyone can become informed about their world.

"United We Stand" Click Here To Create Your Personal Citizen Journalist Account Today, Be Sure To Invite Your Friends.

Please Help Support BeforeitsNews by trying our Natural Health Products below!

Order by Phone at 888-809-8385 or online at M - F 9am to 5pm EST

Order by Phone at 866-388-7003 or online at M - F 9am to 5pm EST

Order by Phone at 866-388-7003 or online at M - F 9am to 5pm EST

Humic & Fulvic Trace Minerals Complex - Nature's most important supplement! Vivid Dreams again!

HNEX HydroNano EXtracellular Water - Improve immune system health and reduce inflammation.

Ultimate Clinical Potency Curcumin - Natural pain relief, reduce inflammation and so much more.

MitoCopper - Bioavailable Copper destroys pathogens and gives you more energy. (See Blood Video)

Oxy Powder - Natural Colon Cleanser!  Cleans out toxic buildup with oxygen!

Nascent Iodine - Promotes detoxification, mental focus and thyroid health.

Smart Meter Cover -  Reduces Smart Meter radiation by 96%! (See Video).

Report abuse


    Your Comments
    Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

    Load more ...




    Email this story
    Email this story

    If you really want to ban this commenter, please write down the reason:

    If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.