It'll be 'challenging' to sustain lower taxes, says former Bank of England deputy governor

8 June 2022, 08:40 | Updated: 8 June 2022, 08:53

Sir Charlie Bean spoke to LBC's Nick Ferrari.
Sir Charlie Bean spoke to LBC's Nick Ferrari. Picture: LBC

By Emma Soteriou

The Government will find it "challenging" to sustain lower taxes, the former deputy governor of the Bank of England has said.

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Sir Charlie Bean said a rise in health and defence spending would make long-term tax cuts difficult to maintain.

Speaking on LBC's Nick Ferrari at Breakfast, he said: "Obviously the Tories want to cut taxes as a signal for the longer term but I think it's worth saying that, while they may have room to cut in the near term, it's a bit more challenging to know whether it could be sustained.

"If you look at the share of Government spending in GBP, it's been pretty constant to around 40 per cent - for the last 50 years it wobbles around that.

"Beneath the surface, there's a lot more going on.

"The share of health and welfare spending has risen from about a quarter to about a half over that time and that's been possible because things like defence spending, capital investment - particularly house building - and debt interest have all been cut back."

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Sustaining lower taxes will be 'challenging'

He continued: "But there's limits scope for cutting them back further. In fact, debt interest is likely to rise, defence spending may well rise given what's happening in Ukraine, and the underlying trends that have been driving up health spending are still going to be there going forward.

"We've got major population demand for more expensive treatments.

"It's quite challenging - without rethinking what the state does to sustain significant lower taxes."

It came after Sir Charlie commended Chancellor Rishi Sunak's approach to taxes following the Covid pandemic.

"The Chancellor's already taken some pretty significant action to try and keep up people's living standards through the energy crisis and food crisis that we're going through," he said.

Mr Sunak previously announced in his Spring statement that the basic rate of income tax will be cut from 20p to 19p in the pound by 2024.

He said it equated to a £5 billion tax cut for 30 million people.

However, there have been calls for Boris Johnson to introduce more tax cuts following his confidence vote.

It is believed Mr Johnson gathered the Cabinet and demanded they work out ways of 'cutting costs' and delivering better value for money for the taxpayer - even hinting at extra tax cuts as he tries to get leadership of the party back on track.