Osborne's savings are too timid and too slow

March 16, 2016 6:45 PM

The overwhelmingly dominant challenge that faced the coalition government was getting spending under control. A weak, sluggish economy could not withstand higher tax and fears that jittery markets would lose confidence in the UK treasury's ability to stay on top of its debt were real. So reversing the extraordinary spending rises of the previous decade was the paramount concern.

Six years later, the government is still spending far beyond its means. This isn't only a problem because it stacks up alarming debt levels for taxpayers to service and repay in future. There is also substantial evidence linking greater government spending levels to lower economic growth. So by splurging now, we're leaving the next generation with higher bills to pay and a weaker, smaller economy from which to pay them.

Progress towards bringing spending down has been steady but slow. After the 1983 election, Margaret Thatcher's government had a similar public spending problem, with 46.6 per cent of national income spent by the public sector in 1983-84. Over the next five years, her administration reduced that to 37.2 in 1988-89, 9.4 percentage points lower.

By contrast, despite the looming debt crisis and sluggish growth, the coalition only managed to bring spending down from 46.1 per cent in 2009-10 to 40.8 per cent in 2014-15, a fall of just 5.3 percentage points. By 2019-20, ten years later, the chancellor has budgeted the government to spend 37 per cent of national income, a reduction of 9.1 percentage points, still less than achieved by then chancellor Nigel Lawson. In other words, Osborne is moving at less than half quickly.

As recently as December 2014, Mr Osborne was planning to restrain spending to 35.2 per cent of national income in 2019-20. Sadly, at each announcement since then he has increased it, to 36.0, the 36.3, the 36.5 and today 37.0 per cent. That's a lot of money. The difference, 1.8 per cent of national income equates to almost £40 billion pounds, or £1,500 per household.

It needn't have been this way. Our comprehensive Spending Plan, published a few months before the election in March last year, set out 41 costed, detailed and concrete policy measures to enable the government not only to bring down spending to its 35.2 per cent target, but also to meet our revenue target that would enable the substantial Single Income Tax reform proposed by our 2020 Tax Commission in 2012. Instead of increasing the projected spending in the years ahead, he should cut it and cut tax, too.

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