Thorsten Beck's picture
Affiliation: 
Cass Business School
Credentials: 
Professor of Banking and Finance

Voting history

The “Spend Now, Tax Later” Budget

Question 3: Which of the following best characterizes the pace at which the budget addresses UK’s medium term fiscal challenges (deficit and debt)?

Answer:
Reduces deficits too rapidly
Confidence level:
Confident
Comment:
The UK has entered the pandemic with a rather tight fiscal stance (and at the end of a 10-year austerity period), eased over the past 12 months. While long-term fiscal consolidation is certainly a laudable objective, it seems too early to even take first steps towards this objective (as done with personal income tax), given the continuously high public health and economic uncertainty.

Question 2: To what extent will the “super deduction” aide the UK’s recovery from the Covid recession?

Answer:
Moderately
Confidence level:
Confident
Comment:
The UK is struggling with two shocks - the pandemic recession and the uncertainties of the post-Brexit economy. While the super deduction might help pull forward investment into the short term and thus speed up economic recovery, the Brexit uncertainties work against it and will certainly off-set a large part of the positive effect.

Question 1: How will the increase in the corporate tax rate from 19% to 25% affect the UK’s international competitiveness in the medium term?

 

Answer:
No effect
Confidence level:
Confident
Comment:
I do not think that a higher corporate tax rate will be a first-order factor in the UK's competitiveness in the medium-term, compared to other more important factors. Most importantly, the exit from Europe's Single Market and Customs Union and the ongoing conflict with the EU will have bigger negative effects on competitiveness, both in certain areas of manufacturing as in large parts of the service sector.

Should We Worry About Post-Covid Inflation?

Question 2: Which of the following will be the greatest inflationary (or deflationary) force facing the UK economy?

Answer:
The UK’s exit from the EU
Confidence level:
Confident
Comment:
Emigration of workers especially in the lower-paid segments of the economy will increase wage pressures. International trade-related costs will also be passed on (partly) to consumers. At the same time, increased public debt, related to both the pandemic and to support payments for Brexit disruptions will create fiscal dominance and thus prevent the Bank of England from taking aggressive action to keep inflation on target.

 Question 1: Which of the following scenarios is most likely to hold on average for most of the upcoming decade?

Answer:
The BoE will be unable to avoid inflation exceeding its target
Confidence level:
Confident
Comment:
Several factors will push inflation upwards in the UK (unlike in the euro area!) over the next few years. One, population decline due to emigration of EU citizens will cause upward pressure on wages and ultimately prices, e.g., in agriculture and services. Two, Brexit has put upward pressure on costs, which will ultimately result in higher prices. Three, fiscal dominance will prevent the Bank of England to take aggressive action to keep inflation on target as well as the fact that the two before-mentioned factors are supply- rather than demand-related.

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