The British economic downturn did not start with the fallout of the credit crunch. The foundation was laid in 1997, when Labour took power and started to carry out its ambitious programme.
The economic growth between 1992 and 1995 was very high. Since 1997 economic growth has never again reached the peaks of growth under Thatcher and Major and growth has declined steadily.
The size of government has risen to a staggering 44.7 % of GDP according to the latest economic figures. In 1997 it was 39 %. There is a direct link between the size of government and economic growth: the smaller the former, the larger the latter.
Gordon Brown’s public spending spree largely benefited the public-sector payroll, with poor productivity outcome. NHS spending has almost tripled since 1997: from £32 to £92 billion.
To pay for it all, taxes continue to rise. The tax take is the biggest in ten years. Even that wasn’t enough, hence the steep rise in public borrowing,
Add to this a flood of new largely EU regulations (gold-plated by the Labour government), and we have a logical explanation of why the UK’s growth is slowing down. Agreed, there is an international rise of prices for food, raw materials and fuel – but that is equal for all countries. The reason why the UK is doing worse is its own government. It is interesting to note that many non-doms who are fleeing the UK say that the new non-doms levy is “just the last straw”.
In this time of economic downturn we need tax cuts to make the pie grow again. A substantial cut in corporation tax would do the trick. This was, of course, what caused the steep rise in GDP growth in Ireland (wrongly described as The Irish “miracle” – there is nothing particularly miraculous about the link between tax cuts and economic growth). There is no reason why the UK could not become the fastest growing economy in the world if it really wanted to.
Whereas in the medium term the Laffer effect would ensure a larger tax take as a result of GDP growth, in the short term the tax cuts could only be afforded by cuts in public spending. The Conservative Party is far too timid on the subject. A comment by Philip Hammond MP [against] a cut in public spending at a time of an economic downturn was profoundly unhelpful. A pound spent in the public sector delivers a much smaller return than a pound spent in the private sector (kept in private hands as a result of tax cuts). I cannot believe that 62 years after John Maynard Keynes’ death anyone still believes that public spending is needed to make the economy grow.
We like to blame Europe (I do), but abandoning traditional Anglo-Saxon small government for continental big government was largely a choice made by Blair and Brown – not an imposition from Brussels.
Cllr JP Floru
Director of Freedom Alliance
2008 Index of Economic Freedom
The size and Functions of Government and Economic Growth, by James Gwartney, Robert Lawson and Randall Holcombe, Joint Economic Committee Study, April 1998.
Tories’ economic legacy has been squandered, by ruth Lea, The Daily Telegraph, 17 September 2007.
Tory row over tax and spending grows, by Jean Eaglesham, Financial Times, 5 February 2008
Barmy arguments from Philip Hammond on spending, by Corin Taylor, Taxpayers’ Alliance Website, 5 February 2008.
Tax ‘n’ spend: No way to run an economy, by Ruth Lea, CPS, 2004.