There is nothing inevitable about our economic woes. They are the consequence of choices we continue to make. Our budget deficit, which is at the root of our problems, is perfectly solvable. We just need a modicum of willpower. The Institute of Economic Affairs has launched its Alternative Budget, a plan to get our budget back into surplus within two years while cutting taxes and stimulating growth. None of what we propose is radical. The government would still be much bigger than at the start of 2020, before the supposedly one-off spending increases occasioned by lockdown. We are not proposing to go back even to Blairism, let alone to Thatcherism. Rather, we have taken as our objective the government’s own stated goal of getting back into surplus by the end of the Parliament. It should be the easiest of tasks. Here is how to do it, concentrating on replacing inefficient and expensive taxes with taxes that do not create perverse incentives. 1. A budget surplus by 2027/8. At present, we are spending more on debt interest than on education or defence. This year, according to the OBR, the government will borrow an eye-watering £115.5 billion. It will then spend £89 billion on paying the interest on previous borrowing – not repaying the debt, just covering the interest. That is not borrowing to invest. It is borrowing to fend off past creditors. Britain’s debt is now, in absolute terms, the fourth largest in the world, behind the much larger economies of the US, China and Japan. That weight is pressing down on our economy, preventing growth. The IEA Alternative Budget provides a plan to turn or £115.5 billion deficit into a £7.8 billion surplus in less than two years. That does not cancel our huge national debt, of course, but it begins the process of reducing it as a share of our economy, and lay the foundations for sustainable growth. 2. A benefits freeze. We propose freezing welfare spending at its current level of £349.8 billion for a year, and then reducing it by 0.85 per cent a year for the rest of the Parliament. Again, this would make barely a dent on the gargantuan increases since lockdown, and could be achieved by a mixture of abandoning the triple lock and reducing or removing some of the long-term sickness payments which – incredibly in every sense of the word – more than a thousand people a day are signing up for. 3. Scrap taxes that bring in little or no revenue. This should be completely uncontroversial. The purpose of taxation is, or ought to be, to raise money for the Exchequer, not to signal your disapproval of this or that group of people. In some cases, the repeal would indeed be straightforward. Next to no revenue is raised by the Bank Surcharge, the Digital Services Tax, Air Passenger Duty or the Building Safety Levy. We list a number of such taxes where the overall impact is either neutral or negative, in the sense of driving revenue away. We also propose radically simplifying the IR35 rules, which cause huge hassle for self-employed people while raising nugatory sums. And we suggest scrapping all the customs and tariffs that we have inherited from the EU. More controversial, perhaps, is returning to the system where non-doms can pay a flat annual fee. Ministers have been privately shocked by the loss of revenue occasioned by the restrictions on non-dom status begun under Rishi Sunak and made worse under Keir Starmer. They know it is a net drain on the Treasury, but they worry about selling the change to sceptical voters. In fact, this is one of those changes that Labour could make more easily than the Tories. No one is going to accuse Andy Burnham of being in the pockets of foreign oligarchs. 4. Scrap Inheritance Tax While inheritance tax does bring in a certain amount of revenue – £11.2 billion this fiscal year – it has a chilling effect on growth, which is why many countries, including Canada, Australia and New Zealand, have scrapped it. A recent study from Sweden found that abolition was followed by a surge of investment into family-owned firms, whose owners had previously been withdrawing capital so that their heirs could afford the hit. That means, over time, a higher tax-take. 5. Scrap Stamp Duty Again, there would be a short-term loss of revenue, but our rigid housing market is like a cage around our economy. People cannot afford to buy property or to free up space by downsizing. Labour mobility is restricted and the costs imposed on purchasers are out of proportion to any gain for the Treasury. 6. Shift from income to consumption taxes We propose a major simplification of employee National Insurance (a flat rate of 4.25 per cent) and of income tax. The new rates would be 6.5 per cent for incomes up to £20,000 (everyone should have skin in the game); 20 per cent for up to £52,000; 40 per cent for up to £110,000; and 45 per cent above that. We know that lower, flatter and simpler taxes correlate to higher growth rates, and the fiscal loss here is sustainable: £12.4 billion this year, £13.3 billion next. All the proposed tax cuts and abolitions referred to above would be more than offset by a simplification of VAT, which would now apply to currently exempted categories of goods and services. No form of tax is perfectly fair, though taxes on spending tend to correlate closely enough to disposable income (richer people spend more). Unlike income tax, which is paid by a minority of adults, we almost all pay VAT, and would thus have a stake in constraining government expenditure. Scrapping the exemptions will make the system cheaper and easier to administer. More immediately, consumption taxes are less bad for growth than income taxes. 7. Savings and Defence Bonds We would raise the ISA allowance to £50,000 as well as creating a Defence Bond, available only in stocks and shares ISA accounts. Households would be able to finance long-term defence investment but, again, the real point is that economies that encourage saving and investment are economies that create growth and jobs. 8. Intelligent deregulation So many rules have been adopted with an eye on one day’s headlines and no thought for their cost. On everything from occupational licensing to child care ratios, we have allowed the law to become a way for existing producers to keep out new entrants, hugely to the detriment of the economy as a whole. Scrapping these regulations would not cost a penny, and would lead to immediate an immediate boost in growth. Close to the top of the list is energy policy. Our economy, being services-based, is uniquely exposed to the changes being brought by AI. As services jobs disappear, they will be replaced either by manufacturing or by new AI-enabled industries. Those two sectors are both enormously energy-thirsty; yet we have the highest industrial energy costs in the world. To repeat, none of this should be controversial. It is a sign of how change-averse we have become as a country that it should be seen as politically brave. Sooner or later, these changes, or something very like them, will happen. When they do, we will ask why it took so long.