Blog 2023 Malcolm Blair-Robinson

Politicians and economists of every stripe agree that what is needed is growth. Then comes the divide. The broad left want to maintain or more slowly reduce government spending; the broad right want to re-allign the economy away from big state towards private enterprise and cut vigourously to reduce the deficit twice as fast. Each side claims the other is headed for disaster.

The argument is straightforward. If you cut too much too soon the economy does not grow, so up goes the benefit bill and down comes tax revenue. Unfortunately in the context of the UK economy maintaining expenditure means borrowing more. This deals something of a hammer blow to the left argument and allows the right to claim that by cutting more, borrowing is less and the foundation for a sustained recovery is laid.

Both left and right can end up in the same place coming from opposite directions. That is an economy flatlining with stagnant revenues and a rising welfare bill. If they get there they will not stand equal however. The left will be very over borrowed with nowhere to go. The right will be less heavily borrowed and will therefore still have some scope for stimulating growth. That is without doubt the better place to be. That is why the public still supports the cuts.

In the current context Ed Balls is getting quite excited because he sees evidence in forecasts and statistics that the economy is growing hardly at all and certainly less than was predicted. He thinks this proves Labour correct. It does not. What has been achieved thus far is a significant shift of emphasis from state to private, from service to manufacturing, from borrowing to investment, from rising combined public and private debt to falling loan balances; in other words a re-shaping of the economic model on much more sustainable lines. All of that is not only good, but absolutely essential for future sustainable growth.

That it has been set in train without a double dip recession is surprising and welcome. There may now be a case for additional stimulus to fully take advantage of the low pound which favours home manufacturing and exports as our goods become more competitive overseas and imported goods become more expensive at home. There is huge scope. In everyday consumer utilities and electronics we make practically nothing. Who knows of a British light bulb, toothbrush, T.V., dishwasher, phone or tablet?

What may help now is another look at business taxes. Clearly the banks, at whose door most of the blame for the economic wreck and dysfunctional economy can be laid, can expect no relief from whatever vengeance tax is thrown at them. The same cannot be said of the oil industry nor corporation and other business taxes. A reduction or two here might cost a little in the short term, but it would increase revenue in the long term. What matters in the end is revenue volume, not tax rate and it is here that George Osborne needs to cast his eye.

This entry was posted on Thursday, May 12th, 2011 at 10:24 am and is filed under Malcolm Blair Robinson. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.