In the lobby of HM Revenue and Customs main office is a ticker, and every morning it starts at zero. By the close of end of each and every day, 365 days a year, that ticker has reached one and a half billion. As in: the number of pounds sterling collected by HMRC daily.
£1,500,000,000 is collected by HMRC on a DAILY BASIS.
If the economic history of the 20th Century taught us anything, it was one simple truth: Keynes got it wrong. Governments can’t stimulate an economy by recycling our money through it, they can only take money out of an economy by spending it. Some of that spending is socially justified, but none of it can ever be economically justified.
Yet Keynes reigns supreme in the Palace of Westminster. I sometimes wonder whether a wily Gramsican has left copies of Keynes’ General Theory scattered throughout Treasury offices disguised as a ‘How To’ manual. How else to explain the treasury officials who siphon £1.5billion out of the economy every day, then scratch their heads and wonder why growth hasn’t materialised?
George Osborne must be particularly flummoxed at the moment following the news that ratings agency Moody’s has downgraded the UK to Aa1 status. The way that Labour politicians are gloating, you would have thought that Moody’s had made the change due to the chancellor cutting ‘too fast and too deep’. Yet the precise opposite is true; Moody’s makes it very clear in its report that the downgrading is due to the slower than expected tackling of the deficit, which in part has been brought about by a stagnant economy (the two are fundamentally intertwined). As Toby Young pointed out in his column, “The report might as well be headed: “Cuts? What cuts?” which is hardly a ringing endorsement of Labour’s critique of the Chancellor’s fiscal strategy, then.
In my last article on The Backbencher I discussed how the government could take a more radical approach to cutting state budgets, whilst protecting the services that the public value yet aggressively tackling wasteful bureaucratic spending. Which to some, is absolutely necessary if we want to get public finances back on track, however this approach does carry the drawback of requiring a clear headed person to micromanage departments and drive the changes through over a period of time.
A much quicker and easier option for Osborne would be that of simply cutting tax rates.
So far, the coalition government has bought into the Brownite narrative on dealing with the debt crisis: mild cuts to achieve slow deficit reduction leading to a massive 60% increase in total debt, whilst printing money to keep the cost of that debt down. Balls and Osborne may quibble over the odd decimal point, the odd billion pounds here and there, but Osborne’s Plan A is Ball’s Plan B. Economically, it seems that we would be in an almost identical place had Darling been left in charge of the red box after the last election. Ironically we may even have been slightly better off, as the Tories have used some spending, such as the foreign aid budget, to try to shirk their nasty party image.
Osborne has also plundered the pockets of the taxpayer to try to ease the government’s dire financial situation. Tax liability has risen by £1,360 per year on average, with some groups much harder hit than that figure suggests. That’s coming close to a month’s take home pay on average earnings, a loss that will make itself felt by people simply spending far less if and when they head to the high street. Fewer pounds spent in shops and businesses results in a slower economy, it really is that simple.
Happily, Osborne doesn’t have to take my word for it: Sweden and Estonia have already cut taxes. The result? Estonia, which has a flat tax rate of 21% and cut its budget by 10%, is enjoying the fastest growth in Europe. Meanwhile the Swedes enacted a tax cut on low level jobs that was equivalent to handing over an extra month’s pay-check. So many people were encouraged back into work, the policy paid for itself.
With only two years to go until the next election, the next budget will be the last one available to Osborne in which he can make a positive difference in time for it to be rewarded at the polls. With Britain currently mired in what looks set to be a lost decade if we’re lucky, voters are likely to be thinking of just one thing at the ballot box: how well off do they feel? When Osborne signs off the budget he should be therefore thinking of just one thing: how to get more money into the hands of the electorate. The answer is too simple ever to be dreamed up by PPE graduates with inflated ideas of what politics can do. The answer is simply to cut taxes.