With the spending review the economy is back in the news. There are three potential ways to deal with the deficit that remains high despite the (rather inadequate) cuts.
They can increase government income. The problem here is that taxes are already too high and are economically damaging. Increasing taxes that are already too high is a damaging, because when targeted on ‘middle earners’ it reduces their disposable income to spend on goods and services and when targeting the most wealthy actually reduces the amount of tax collected from them and reduces investment in businesses. It therefore impacts adversely on economic growth.
They can cut spending further. Regardless of what certain vested interests claim the government still wastes £billions every year. The simple fact is that governments spend inefficiently. For one thing they have massive staff on-costs, public sector pensions alone are crippling even after the recent changes, they are far more expensive than any business can afford. Then, of course, where a business might employ two people to do a specific job the public sector employs three people, or more to do the same.
Through economic growth. Only private sector businesses trading profitably can get growth going. For this businesses (and their customers) need a much lower burden of government in taxes, in red tape and in interference. This is particularly true domestically when our main trading partner, the Eurozone, is in economic difficulties.
In two of the above the government has been moving in the right direction though often it is a matter of too little too late.
Where they have not done what is needed is in tax. There are ways they can increase government income without damaging economic consequences.
On public spending they have cut spending but often in the wrong areas, such as Defence. These cuts though are simply not enough and far more has to be done in this respect. There is much more they can do – for instance do less….. basically reduce the functions of government. Yes, vested interests will squeal, let them and ignore them.
On growth there have
been some tentative supply-side reforms but not nearly enough. They have cut £4billion in ‘red tape’ costs
to business over the last two years but, they have imposed £3bn of new ‘red tape’ costs…. Over 70% of this new regulation has been
imposed by
So who are the ‘barriers to growth’?
Osborne has said that he wants progress on all or most of the areas I identified above for action. But, it is a matter of public record that the LibDems have opposed tooth and nail every one of the reforms needed.
If you are suffering then it is the LibDems who are to blame.
This is the problem with coalition government. The smaller party has far more power than its numbers justify. Legislation on essential matters cannot be passed without their support.
This does not let Cameron and Osborne off the hook. They, after all, went into coalition in the first place when a short period of minority government and another election would have been better. They also need to do more to stand up to the LibDems – too often they have failed to press matters as far as they should. Instead of standing up to them they seem to almost sucking up to Cleggy and co far too much and, in doing so, stirring up discontent on the back-benches.
So – yes, the LibDems are the barriers to growth…. Cameron and Osborne are not doing enough to flush this blockage down the u-bend.