What growth agenda?
With all the marching and political grandstanding against "cuts" that we've seen so far this year, it's easy to forget that the UK's deficit is still as big as Greece's, and government spending accounts for 50.1% of all GDP. As a superb piece by Julian Harris in Monday's City AM showed, there hasn't been anything in the way of cuts yet:
This year, the first six months saw another £7.5bn nominal rise in total public sector spending (which excludes the effects of financial sector interventions). When inflation is taken into account, this does amount to a decline – of 0.43 per cent, compared to 2010.
Yes, total public sector spending, even in real terms, was just 0.43 per cent lower than last year – and still 3.9 per cent higher, in real terms, than in Labour’s final full year in power (2009).
By the end of the current fiscal year, the government’s officially recognised debt – which does not even include many eye-watering, massive liabilities – will top one trillion pounds. It has already reached the equivalent of 61.4 per cent of British GDP. Little wonder that last month’s level of public sector net borrowing – £15.9bn – was an all-time record high for August, despite the government clawing in £2.24bn more in tax than during the same month last year.
Net borrowing has reached £51.5bn in the financial year to date, only slightly down from borrowing of £55.3bn at the same point in last year’s cycle. The billions aren’t going quite as far as they used to, thanks to inflation, but this still looks more like topiary than axe-swinging. The government remains on track to pile more than another £120bn onto the public debt by the end of the year, with some economists doubting if the annual deficit will be cut at all.
The whole piece is essential reading. The bottom line is that the government is still spending like there's no tomorrow, and Britain's growth rates are abysmal.
As I wrote yesterday, the problem isn't austerity, but a failure to make it easier to do business in Britain. George Osborne may have put forward a reasonably convincing plan to cut the deficit (though it seems unlikely that he will eliminate it by 2015), but he and Vince Cable have failed utterly to promote wealth creation in Britain. The Coalition has done pretty well at accountancy, but terribly at economics.
What's to be done? Supply-side reforms like Madsen's would be a good start – let all firms register their employees as self-employed to cut through volumes of regulation and avoid some national insurance. Significant tax simplification should be on the agenda: abolish all tax breaks for everything, and use the money saved to reduce the overall tax burden – particularly for income and corporation taxes. Favouring one sector over another, or one type of firm over another, is ineffective tinkering and hostage to the realities of political lobbying. It distorts the economy and wastes money.
There are other things that can be done – it's not rocket science, but the economy can't be expected to grow with the state as big as it is. Tax cuts and deregulation are needed, and until a pro-market growth agenda that delivers reforms like those is put forward, the government cannot expect a decent recovery. There ain't no such thing as a free lunch.