No cuts, no growth, no surprise

John Redwood MP has an interesting blog today on the talk of downward revisions to growth over the weekend.

“I find it surprising that people are surprised that growth is slow. It all goes back to the misunderstanding about which sector, public or private, took the hit last year... the first Coalition year saw continued growth in overall public spending, along with substantial tax increases (imposed by both Labour and the Coalition governments) and a big surge in inflation.”

This has taken its toll on the economy. While fiscal contraction remains necessary to close the dangerously unsustainable deficit, it has largely come through tax rises rather than the public spending cuts the private sector needs if it is to grow. Those ‘cuts’ which have happened in the public sector have been outweighed by large increases in other areas so that the net effect has been that the only thing cut is the rate of increase in spending.

He also has something to say about what the Government should do about the mismatch between the two sectors:

“The continuing large fiscal stimulus did not work. We need a private sector stimulus, not more public spending. Constantly increasing public spending and borrowing can increase the squeeze on the private sector, as it is allied to present and future tax rises to pay for it all.”

The economy needs taxes to be cut and simplified. They’re too high and far too complicated. But it’s not just taxes which are choking off growth in the private sector. Regulation hurts, too. Measures such as abolishing restrictions on Sunday trading and loosening Britain’s notoriously restrictive planning regulations represent a ‘quick win’ the Government can achieve fast without necessary but politically difficult spending cuts. With some taxes such as the 50p rate which simply don’t raise much revenue at all (if any), there’s plenty the Government could be doing right now while it gets on with the cuts that have been talked about for so long.

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