Mr. Sebastian Barnes:

The Deputy has asked an important question. There are choices to be made. One choice is about how one allocates a given amount of spending between different uses. The other question is whether one wants to raise taxes to create more space. One option would be, for example, to do less with indexation, which would give the Government, subject to one qualification, more space. In that way, it could allocate more towards helping other groups in society through higher spending. There is a case for doing that. There is also a case for taxing people who earn higher incomes - and, perhaps, incomes that have done quite well in the past few years, as we discussed in our May-June report - and using that to help the more vulnerable groups.

One important caveat and one concern of ours is about the design of the spending rule. The Government's spending rule is purely about spending. If one takes, for example, the European spending rule, then that takes into account changes in tax policy. If, for example, under the European rule, one increased taxes, and that could include through not indexing the tax bands, it would give more space to increase spending because, in terms of the overall balance, that would be neutral, which is what we really care about. It is just that one reaches that point in a different way. At a minimum, it would be good for the Government to clarify how that is treated. From an economic point of view, however, it would be a very good improvement to allow discretionary tax measures to enter into that spending equation. There are a lot of other good reasons for doing so as well. It also closes down any incentive that the Government might have, in different circumstances, to cut taxes because it cannot do anything on the spending side politically. In this context, it is very sensible that the Government should at least have the option within the spending rule to also change the tax and spending mix. The council is not taking a view as to whether that is a desirable thing or not in terms of whether that should be done regarding the mix of spending and taxation that one wants. The spending rule, which should really be about hitting a particular balance, should give the Government the option to raise taxes and give itself more space for spending.