Britain risks deepening its economic malaise by raising taxes again, a former adviser to three US presidents has warned, as pressure mounts on Andy Burnham and Chancellor John Healey ahead of next month\u2019s Budget.<\/p>\n
Arthur Laffer, the influential American economist best known for his theory that excessive taxation can ultimately reduce government revenues, said the UK was caught in a \u201cdeath spiral\u201d of weak growth and rising fiscal pressure.<\/p>\n
Mr Laffer, who has advised Ronald Reagan, Bill Clinton and Donald Trump, is due to visit London this week and urged the Government against using its first Budget to impose another round of tax increases.<\/p>\n
\u201cI have never heard of an economy being taxed into prosperity. What\u2019s happening is, Britain is taxing itself into death,\u201d he told<\/a> The Telegraph.<\/p>\n \u201cYour problem is not too little revenue. Your problem is too little growth, too little prosperity.\u201d<\/p>\n The intervention comes as Mr Burnham and Mr Healey prepare for an October 28 Budget overshadowed by concerns about weak economic growth, elevated borrowing costs and the deteriorating state of the public finances.<\/p>\n Neither the Prime Minister nor the Chancellor has ruled out tax<\/a> rises, prompting warnings from business groups and investors that another fiscal squeeze could further undermine confidence.<\/p>\n Mr Laffer argued that Britain\u2019s recent economic performance demonstrated the dangers of pursuing higher taxation in an attempt to stabilise the public finances.<\/p>\n \u201cYour record is not illustrating a good set of policies,\u201d he said. \u201cIt\u2019s really indicating exactly what you see when [an] economy gets in the death spiral.\u201d<\/p>\n His warning was echoed by the British Chambers of Commerce, which has described further tax increases on businesses<\/a> as a potential \u201croad to ruin\u201d.<\/p>\n Shevaun Haviland, the BCC\u2019s director general, said the Chancellor should instead use the Budget to reduce the costs facing companies.<\/p>\n \u201cThe Chancellor must use his first budget to cut the cost of doing business, allowing everyone to reap the economic benefits,\u201d she said.<\/p>\n \u201cPiling more taxes on firms<\/a>, would be a road to ruin, and the quickest way to destroy business confidence.\u201d<\/p>\n The business group has called for action to reduce industrial energy costs and business rates, while also proposing measures to improve employment prospects for younger workers.<\/p>\n Among its more controversial recommendations is the abolition of the state pension triple lock<\/a>, with the resulting savings used to finance cuts to employer National Insurance Contributions for workers aged under 25.<\/p>\n Lord Jim O\u2019Neill, a former economic adviser to Mr Burnham who declined a formal role in his government, has also argued that ministers should address what he has described as the \u201cexcesses of the triple lock\u201d.<\/p>\n The growing alarm over fiscal policy has also spread to financial markets.<\/p>\n Pimco, one of the world\u2019s largest bond investors with more than \u00a31.5trillion under management, has warned that Britain is suffering from a perceived loss of economic and fiscal credibility.<\/p>\n Rupert Harrison, the firm\u2019s senior adviser for the UK and a former chief of staff to George Osborne, said investors were demanding a premium to hold British government debt.<\/p>\n \u201cThe UK is paying a premium because of a perceived loss of economic and fiscal credibility,\u201d he said.<\/p>\n Mr Harrison pointed to persistent inflation and rising<\/a> government borrowing as central concerns. While borrowing costs have increased across advanced economies, Britain\u2019s have remained comparatively elevated for an extended period.<\/p>\n The gilt market<\/a> endured a particularly difficult week, with the yield on 10-year government debt briefly reaching its highest level since August 2007.<\/p>\n Britain recorded the sharpest rise in borrowing costs among the G7, reflecting investor concerns over the public finances and uncertainty surrounding the forthcoming Budget.<\/p>\n Kenneth Rogoff, the former chief economist of the International Monetary Fund, has gone further, warning that Britain could be among the wealthy world\u2019s most vulnerable economies in the event of a debt crisis.<\/p>\n Prof Rogoff, who led the IMF\u2019s economics division between 2001 and 2003, said recent turmoil in bond markets posed a particularly serious threat to the UK.<\/p>\n \u201cThe UK and the US might be the two most vulnerable countries, and probably the UK more vulnerable,\u201d he said.<\/p>\n He warned that high debt levels, elevated interest rates and political constraints could create the conditions for a wider fiscal crisis.<\/p>\n \u201cIf your debt is high, the interest rates<\/a> you\u2019re paying are already high, you\u2019re politically paralysed, often that\u2019s a recipe for having a debt crisis,\u201d he said.<\/p>\n In such circumstances, Prof Rogoff suggested, Britain could ultimately face the prospect of seeking assistance from the IMF.<\/p>\n The deterioration in market conditions has also placed pressure on the Government\u2019s fiscal headroom. The \u00a323.6billion buffer against its fiscal targets available at the spring statement has been steadily eroded by higher bond yields and inflation linked to the conflict in Iran.<\/p>\n Mr Healey is expected to attempt to shift attention towards growth in a major speech on Monday, when he will announce a \u00a3150million fund aimed at supporting fast-growing businesses in northern England.<\/p>\n The programme, delivered through the British Business<\/a> Bank, will provide investments of between \u00a35million and \u00a315million to innovative companies seeking to expand.<\/p>\n