News

Durham University expert comments on Budget

(12 March 2008)

A Durham University expert comments following Alistair Darling’s first Budget statement today [12 March 2008].

Dr Thomas Renstrom, Lecturer in Economics at Durham University, said: “At first it looks as if the budget is aimed at addressing issues of major importance: global warming, antisocial behaviour, child poverty. “In general, the policy measures introduced to tackle major issues are too narrowly focused, and in many cases will have little effect on consumers' behaviour. The measures seem to reflect the agenda of narrowly focused pressure groups. It looks as if the government wants to claim they have done something on each issue.” Road pricing “I welcome the decision to set aside funding for exploring road pricing. The only sustainable solution in the long run to cut CO2 emissions is to encourage public transport in combination with pay-as-you-go road pricing.” Alcohol tax “I do not think higher alcohol prices will reduce the phenomenon of binge drinking. If the price hike is large enough (and it would have to be substantial) people may choose to binge drink once a week instead of twice. The experience from Sweden in the 1980's with very high alcohol prices shows that binge drinking is relatively insensitive to the price.” Inflation “External forces make food and land prices to rise in the UK (implying a fall in the real wage). Those price rises may well be in excess of 2%, and if these price rises are misinterpreted as inflation (rather than the relative price shifts they actually are) worse is to come, as the Bank of England may choose to raise interest rate, squeezing households' budgets even further. If that is the case we will se further default on mortgages and deepening of the financial crisis.” Income tax “Without a spending reform, little can be done on the income-tax side. The government has reduced tax pressure on individuals at the lower end of the income distribution. This will help low-income families to cope with the increasing food and fuel prices and the high interest rates. This is probably not enough. Yet higher food and fuel prices may erode the gain from the tax system, and if the Bank of England does not cut the interest rate, low-income families will find themselves worse of next year.” Spending “Spending more on secondary education is needed. However, the government should direct the funds to increase the size of the teaching staff, and teaching related resources, avoiding an increase in red tape and non-teaching related expenditures. Too much reliance on "measurable" targets will divert resources from the main activity of schools to artificially meet those targets.” “Showroom” Tax "The £950 levy on larger vehicles is a blunt instrument with no effect on driving behaviour. £950 is about the price of a personalised number plate that typically is purchased with a 4x4 anyway. “The only way to reduce carbon dioxide emissions from transport is to induce a reduction in the use of cars. A better instrument is the petrol tax. However, the only sustainable solution in the long run is to encourage public transport in combination with pay-as-you-go road pricing." Aviation Tax "The tax on flights is likely to have little effect. Globally, the CO2 emissions from cars are ten times greater than that of the aviation industry. To tackle CO2 emissions, the focus should be on use of cars and sustainable transport systems." Budget conclusion “The budget addresses major issues by minor instruments. It is an easy escape for the government to claim they have done something on major issues, by rather "ticking off boxes" in the easiest way, such as charging for plastic bags.”