Economic speculation from the deputy Prime Minister, Nick Clegg, caused ears to prick among all sides of party politics. In a recent interview with The House Magazine, the Liberal Democrat leader criticised the government’s plans on capital spending – something I know for certain that Milton was not happy about.
“If I’m going to be sort of self–critical, there was this reduction in capital spending when we came into the Coalition Government,” Mr Clegg told The House Magazine.
He added: “I think we’ve all realised that you actually need, in order to foster a recovery, to try and mobilise as much public and private capital into infrastructure as possible.”
But specialists argue the Liberal Democrat leader is wrong on this occasion, as cuts in spending towards infrastructure is not the only way you can aid economic productivity. Mark Littlewood, The Director General at the Institute of Economic Affairs (IEA), told me today: “Nick Clegg is misguided in calling for capital spending as a strategy for growth. Far from a programme of austerity, the Coalition is running up colossal budget deficits, adding £4000 to the national debt for each British household this year alone. Today’s GDP figures clearly reflect the fact that economic growth does not stem from splurging more and more money.
“The long-term structural problems besetting the economy require radical supply-side action. The coalition must create the space for major tax cuts, enforce key deregulation measures to boost the private sector, and counter business uncertainty by undertaking key liberalisations in both the labour and planning markets.”
One tax that the Coalition could cut in order to boost infrastructure would be Corporation tax, as levies placed on business hurt the consumer and the workforce as opposed to business itself – as business is comprised of people. We saw this recently when Starbucks was forced to cut paid lunch breaks, maternity benefits, and sick leave after it was forced to pay back taxes it had legally avoided to save costs. Or alternatively, tax rises hurt consumers too, as companies are forced to raise prices in order to cover their costs.
Rory Meakin, Head of Tax Policy at the TaxPayers’ Alliance argued that more expenditure should not be the agenda: “If Nick Clegg thinks the lesson of the last few years was that the Government hasn’t been spending enough of our money and that the deficit has been too small, he needs to think again. The real story is a failure to get to grips with regulation and wasteful current expenditure that would have allowed the tax cuts our economy desperately needs.”
Overall there are no cuts: as an economy the UK is spending more in total this year than ever before. Arguably therefore, it cannot be a question of lack of expenditure to aid economic growth, but perhaps more to do with business regulation and high tax rates which are thwarting economic activity.
What remains to be seen is how the Coalition will adapt its plans to meet today’s poor growth figures; the IEA believes that the economy should go through deeper cuts and heavy deregulation in order to spur economic growth. Such a plan is far from the Coalitions current strategy, but it may well be worth a look at if the figures do not improve soon.