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Page last updated at 08:43 GMT, Monday, 21 May 2012 09:43 UK

Would a smaller state boost growth?

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The Institute of Directors and the campaign Group the Taxpayers' Alliance have published a free-market plan which proposes a flat rate tax rate of 30%, the abolition of wealth and inheritance taxes and much deeper cuts in public spending, taking it down to 33% of national income.

Allister Heath, editor of City AM, chaired the report and explained to Today presenter James Naughtie that the effect of the proposal would be to "substantially boost economic growth" and create more jobs.

"It's time to tear up the tax code and have a rethink about the relative size of government," he said.

Nick Pearce, director of the think tank the Institute for Public Policy Research, disagrees with the report which he believes is a "recipe for increased recession, increased inequality and increased debt".

"The evidence we have is not that shrinking the state, cutting deep into the public sector, will increase economic growth", he explains.


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