With the Budget speech now only a couple of days away I sit here on Sunday night full of roast pork and delighted that, at long last, there appears to be a difference of substance developing between the economic policies of our main parties. In particular, the Conservative front bench is now making increasingly loud noises about the need to make severe cuts in government expenditure. They are not yet, however, saying the one thing I long to hear.
The Chancellor and his Shadow have been setting out their stalls in advance of Wednesday's Budget, there is quite a nice summary in a piece on the BBC website (here). After a gap of a few weeks following the refusal of the G20 leaders to endorse Gordon Brown's ludicrous call for yet more non-existent money to be used to "stimulate" economic activity, it appears that the spendthrift government is reverting to type. We will see on Wednesday how Mr Darling chooses to package it. What is already clear, however, is that he will continue to borrow and spend in the belief that government can make the world of business take risks it does not want to take. His shadow, George Osborne, is emphasising the need to reduce government borrowing to prevent it being a albatross around the country's neck for generations to come.
Both my regular readers will know that I am no fan of debt. Debt is self-induced inflation causing things you buy to be more expensive than their sticker price because you have to add the interest payable on that price to get the true amount payable. That is as true for a government as it is for an individual. We appear to be facing the prospect of the government borrowing in the region of £150billion over the coming year; it could be a little less or an awful lot more but it cannot be a lot less. They will not able to rummage down the back of chair and find £150billion to pay it off any time soon, after all it is about a quarter of the total amount they spend each year, so it represents a long-term burden unless something radical is done to address the problem.
What should never be forgotten about government expenditure is that it happens because the government of the day considers it necessary. It should also not be forgotten that governments seek reelection periodically and will, for understandable political reasons, not be prepared to cut areas of expenditure that will lose votes in key constituencies even if they believe the expenditure is not merited in itself. There is nothing corrupt in this, it is part of the price of democracy. Yet, like all political pressures, the existence and nature of the pressure change over time. In the 1960s and early 1970s it was inconceivable that a party arguing for the dismantling of massive nationalised industries could be voted into office, eventually the economic absurdity of those industries was so well-proven that the argument became a vote winner rather than a suicide note.
An interesting benefit of the current slump is that there is increasing interest in examining exactly what government spends money on. No one can be surprised at Mr and Mrs Ordinary asking how this that and the other can be justified now, despite expressing no such concerns when there appeared to be money to burn.
George Osborne is identifying a number of areas of government expenditure which can be eliminated without losing votes, such as the identity card scheme and certain of the more pointless quangoes. These represent a tentative first step in the right direction and there must be a significant chance that they are genuine vote winners. More importantly, they establish a precedent for reducing what government does rather than just looking for ways to allow it to do the same things but a little cheaper. Efficiency savings are sought by every government, including the present one, but they are just tinkering at the edges they do not address any point of principle. Mr Osborne seems to be addressing the point of principle, namely that very range and scope of the State operation needs to be challenged because it is unaffordable.
What he has not yet done is explain this principle in terms. To a degree I can understand his reticence because it involves opening up a debate the British people have shown no stomach for over more than a decade. He is dipping his toe in the water, seeing what reaction his current proposals receive and, of course, seeing what effect there is on the opinion polls. How far he and David Cameron want to go in slimming down the role of the State remains to be seen, they have not set out a clear position yet. Others in their party, such as John Redwood, have set out a clear position on this for many years. As those who follow Mr Redwood's blog will know, he is no fan of big government. In fact he is adamantly opposed to big government and high taxes because he believes they hurt the poorest in the country most through increasing employment costs and, therefore, reducing employment opportunities and by requiring such enormous tax revenues that the many at the bottom of the pile have to be hit hard for the government to have any chance of raising what it claims to need. I have written before about how those at the bottom can only be helped if those in more comfortable positions help them (in particular here and here). What is, I would suggest, obvious is that those at the bottom are not helped by big expensive government.
Current economic conditions provide the best opportunity in my lifetime to undertake a wholesale reform of the size and scope of government. A series of very obvious questions arise: (i) if big government is so successful in controlling the economy how was it not able to avoid the present slump, (ii) if big government is so good at running medical services why do we have greater infection rates in State hospitals than in private ones, (iii) if big government is so good at running schools why do so many children leave school at 16 barely able to read and write and why are universities having to introduce remedial classes for state school freshers but not those coming from the independent schools, (iv) if big government leads to safe societies why are we spied-on by the largest concentration of CCTV cameras of any country in the world, (v) if big government is the answer to relative poverty why has it not decreased as government has increased in size? The list can go on and on.
For more than a decade we have had a steady increase in the power and expense of government. Mr Osborne is starting to address the expense side of things. His job will be made easier if even modest changes to the power of the State are also proposed because the more power the State has the more it costs to wield that power. I believe the mood in the country is now receptive to the idea that the State is too big and too powerful. My hope is that Mr Cameron, Mr Osborne and their colleagues have the courage to tap into that mood.
The Chancellor and his Shadow have been setting out their stalls in advance of Wednesday's Budget, there is quite a nice summary in a piece on the BBC website (here). After a gap of a few weeks following the refusal of the G20 leaders to endorse Gordon Brown's ludicrous call for yet more non-existent money to be used to "stimulate" economic activity, it appears that the spendthrift government is reverting to type. We will see on Wednesday how Mr Darling chooses to package it. What is already clear, however, is that he will continue to borrow and spend in the belief that government can make the world of business take risks it does not want to take. His shadow, George Osborne, is emphasising the need to reduce government borrowing to prevent it being a albatross around the country's neck for generations to come.
Both my regular readers will know that I am no fan of debt. Debt is self-induced inflation causing things you buy to be more expensive than their sticker price because you have to add the interest payable on that price to get the true amount payable. That is as true for a government as it is for an individual. We appear to be facing the prospect of the government borrowing in the region of £150billion over the coming year; it could be a little less or an awful lot more but it cannot be a lot less. They will not able to rummage down the back of chair and find £150billion to pay it off any time soon, after all it is about a quarter of the total amount they spend each year, so it represents a long-term burden unless something radical is done to address the problem.
What should never be forgotten about government expenditure is that it happens because the government of the day considers it necessary. It should also not be forgotten that governments seek reelection periodically and will, for understandable political reasons, not be prepared to cut areas of expenditure that will lose votes in key constituencies even if they believe the expenditure is not merited in itself. There is nothing corrupt in this, it is part of the price of democracy. Yet, like all political pressures, the existence and nature of the pressure change over time. In the 1960s and early 1970s it was inconceivable that a party arguing for the dismantling of massive nationalised industries could be voted into office, eventually the economic absurdity of those industries was so well-proven that the argument became a vote winner rather than a suicide note.
An interesting benefit of the current slump is that there is increasing interest in examining exactly what government spends money on. No one can be surprised at Mr and Mrs Ordinary asking how this that and the other can be justified now, despite expressing no such concerns when there appeared to be money to burn.
George Osborne is identifying a number of areas of government expenditure which can be eliminated without losing votes, such as the identity card scheme and certain of the more pointless quangoes. These represent a tentative first step in the right direction and there must be a significant chance that they are genuine vote winners. More importantly, they establish a precedent for reducing what government does rather than just looking for ways to allow it to do the same things but a little cheaper. Efficiency savings are sought by every government, including the present one, but they are just tinkering at the edges they do not address any point of principle. Mr Osborne seems to be addressing the point of principle, namely that very range and scope of the State operation needs to be challenged because it is unaffordable.
What he has not yet done is explain this principle in terms. To a degree I can understand his reticence because it involves opening up a debate the British people have shown no stomach for over more than a decade. He is dipping his toe in the water, seeing what reaction his current proposals receive and, of course, seeing what effect there is on the opinion polls. How far he and David Cameron want to go in slimming down the role of the State remains to be seen, they have not set out a clear position yet. Others in their party, such as John Redwood, have set out a clear position on this for many years. As those who follow Mr Redwood's blog will know, he is no fan of big government. In fact he is adamantly opposed to big government and high taxes because he believes they hurt the poorest in the country most through increasing employment costs and, therefore, reducing employment opportunities and by requiring such enormous tax revenues that the many at the bottom of the pile have to be hit hard for the government to have any chance of raising what it claims to need. I have written before about how those at the bottom can only be helped if those in more comfortable positions help them (in particular here and here). What is, I would suggest, obvious is that those at the bottom are not helped by big expensive government.
Current economic conditions provide the best opportunity in my lifetime to undertake a wholesale reform of the size and scope of government. A series of very obvious questions arise: (i) if big government is so successful in controlling the economy how was it not able to avoid the present slump, (ii) if big government is so good at running medical services why do we have greater infection rates in State hospitals than in private ones, (iii) if big government is so good at running schools why do so many children leave school at 16 barely able to read and write and why are universities having to introduce remedial classes for state school freshers but not those coming from the independent schools, (iv) if big government leads to safe societies why are we spied-on by the largest concentration of CCTV cameras of any country in the world, (v) if big government is the answer to relative poverty why has it not decreased as government has increased in size? The list can go on and on.
For more than a decade we have had a steady increase in the power and expense of government. Mr Osborne is starting to address the expense side of things. His job will be made easier if even modest changes to the power of the State are also proposed because the more power the State has the more it costs to wield that power. I believe the mood in the country is now receptive to the idea that the State is too big and too powerful. My hope is that Mr Cameron, Mr Osborne and their colleagues have the courage to tap into that mood.
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1 comment:
Mr FB,
David Cameron's strategy has always been to do nothing, wait for the UK economy to move into recession. This looks like paying off, so I would be surprised if he makes any bold policy initiatives now.
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