High public spending means a decade of decline

December 06, 2010 12:59 PM




Former Prime Minister Gordon Brown has warned that the coming decade may be seen by history as a decade of decline for the West. In an interview with the Guardian he highlighted the rise of Asian economies and the West’s failure to rise to the challenges and opportunities that rise presents.
"If the story of the coming decade is not to become 'the decline of the West' then Europe and America have to change tack, rise to the biggest challenge of all – restructuring the world economy – and equip themselves to benefit from the next great global challenge – the dramatic rise in the consumer spending power of Asia."

Of course, Brown is right. Britain and the West in general are losing their competitiveness as emerging economies continue to liberalise and develop. But while he is right about the threat to British prosperity, he is wrong about why we are struggling to keep up and wrong about what we should do about it.

We are struggling because our economy suffers from too much regulation and, crucially, too high taxes. He should read the TaxPayers’ Alliance research note on the economic costs of high public spending (and therefore taxation). Academic research indicates that for every 1% change in the level of public spending as a proportion of the economy, the growth rate changes by somewhere around one tenth of 1% in the opposite direction. Since 2000-01, public spending in Britain has risen from under 37% to over 48%. As a consequence, every year we’re growing 1% more slowly than we would be if we’d have stuck to 2000-01 levels of spending.

No wonder we’re facing a decade of decline.





Former Prime Minister Gordon Brown has warned that the coming decade may be seen by history as a decade of decline for the West. In an interview with the Guardian he highlighted the rise of Asian economies and the West’s failure to rise to the challenges and opportunities that rise presents.
"If the story of the coming decade is not to become 'the decline of the West' then Europe and America have to change tack, rise to the biggest challenge of all – restructuring the world economy – and equip themselves to benefit from the next great global challenge – the dramatic rise in the consumer spending power of Asia."

Of course, Brown is right. Britain and the West in general are losing their competitiveness as emerging economies continue to liberalise and develop. But while he is right about the threat to British prosperity, he is wrong about why we are struggling to keep up and wrong about what we should do about it.

We are struggling because our economy suffers from too much regulation and, crucially, too high taxes. He should read the TaxPayers’ Alliance research note on the economic costs of high public spending (and therefore taxation). Academic research indicates that for every 1% change in the level of public spending as a proportion of the economy, the growth rate changes by somewhere around one tenth of 1% in the opposite direction. Since 2000-01, public spending in Britain has risen from under 37% to over 48%. As a consequence, every year we’re growing 1% more slowly than we would be if we’d have stuck to 2000-01 levels of spending.

No wonder we’re facing a decade of decline.


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