Quick article on tax vs spending cuts

Thatcherites need a better song on spending cuts - Moneyweek

By: Emily Hohler12/12/2014Post a Comment

If the Tories win the next election, then by 2020 the state will probably have shrunk to its smallest size relative to GDP for 30 years. So declared the Office for Budget Responsibility in the wake of the chancellor’s Autumn Statement, says Will Hutton in The Observer. That means spending per head will have dropped by a third in ten years.

“This is the most dramatic change in state capability that any British government has ever engineered.” The authors of this “massive” experiment insist there is no alternative, but there is: the government has not lifted a finger “to compensate for the haemorrhaging of the UK tax base”. If we want the “scale of public activity congruent with a civilised society, it has be paid for”.

Centre and left-wing politicians must be honest about this and argue the case. Lifting taxes by 3% of GDP to 38.5% (for example, via property taxation and broadening the VAT base) will still leave Britain below the “crucial 40% benchmark, thus undertaxed by comparison with most advanced countries”.

There is an “honourable case for a net increase in taxation”, says Janan Ganesh in the Financial Times, but taking it directly would not be easy. While public spending has “oscillated wildly in recent decades, tax receipts as a share of national income have hovered between 30% and 37% since the 1960s”.

Politicians sense that voters have a “breaking point when it comes to tax”. Osborne will be hoping that his political enemies will try and test it. As for Osborne’s cuts, they may be “politically incendiary”, but they are not impossible.

There have been four “reimaginings” of the state in roughly a century; “two extending the role of government, two rolling it back”. We are due another. This “historical context was absent” from some of the reactions to Osborne’s statement.

The more hysterical made “excitable allusions” to George Orwell’s chronicle of 1930s poverty, The Road to Wigan Pier. In truth, the government has “cut £35bn from departments since 2010 without Britain regressing into a desolate pre-modernity”.

We are not about to return to the 1930s, agrees Matthew Parris in The Times. But we might “be going back to the 1980s”. The Thatcher-Major years proved it is possible to cut public spending below 40% of GDP. But by the end of the last Labour government, Gordon Brown had pushed it back above 47%.

It’s hard to retrench, but a smaller state isn’t necessarily a bad thing. The Tories “shouldn’t have to scare voters” into backing cuts. Have we forgotten the “near-permanent apoplexy at the inefficiency of the public sector”, pre-Thatcher’s privatisations? “Believers in smaller government need… a better song.”

They also need courage, says Janet Daley in The Daily Telegraph. Osborne presumably avoided admitting what cuts on this scale really mean in the “interests of short-term electoral safety”. (Labour was similarly muted on its plans to borrow more, fearing the charge of profligacy, says The Observer.)

However, a “fundamental reimagining of the state” is inevitable, given the “dead end” to which an ever-larger state has brought us. “In their hearts, the people know this and might well reward the political leader who admitted it openly.”