In my last article, I wrote that Britain needs a revolution in our relationship with government.
The UK’s debt burden is unsustainable. Debt interest is forecast to eat up a bigger and bigger slice of public spending every year. At the same time an ageing population and mass immigration are pushing up the cost of healthcare, pensions, welfare and education.
Interest rates are currently being held at artificially low levels – allowing the government to borrow more – but this can only continue for so long: low oil prices and the patience of savers (who have effectively been robbed by 7 years of ultra-loose monetary policy) will not last forever. Nor will a mad property boom that looks uncomfortably like the pre-2008 sub-prime fever.
How did we get here? Well, for one thing public spending has increased dramatically throughout the twentieth century, especially following the two world wars. The expansion of the welfare state and the creation of the NHS greatly added to the burden.
To pay for all this extra spending, successive governments had to collect more in taxes. In the last half century, the total tax burden has rarely ever been able to breach 35-39 percent of GDP. That figure suggests we reached the revenue maximising point of taxation – the point where tax increases no longer raise sufficient revenue – some time ago.
From around 2000, the Labour government embarked on a dramatic spending spree. Public spending increased to nearly half of Britain’s national output, far in excess of what British taxpayers are able to bear.
British government debt had fallen for sixty years after World War II. But around 2000 it starts rising again, and it hasn’t stopped since. George Osborne is often blamed for inflicting austerity on the British economy, yet he has barely scratched the surface of the UK’s debt addiction.
So what can we actually do about it?
Firstly, we need to radically rethink the size and role of the state. British industry boomed when the state was much smaller. As the role of government grew, the economy stagnated. The British disease of low productivity, slower growth and a stagnant economy was only defeated when Margaret Thatcher began to roll back the state.
A small state does not mean ignoring poverty. Only a rabid socialist would argue that life on benefits is superior to standing on your own two feet. Encouraging economic growth has historically been infinitely better for the poor than increasing welfare spending. In any case, belief in a small-state does not mean a lack of compassion for the poor – as Iain Duncan Smith’s resignation has illustrated in one of the most explosive political events in modern British memory.
Many influential thinkers and policy makers favour truly radical solutions to scrap the harmful welfare system we have now. I’m somewhat intrigued by the notion of a negative income tax or a basic income, though I personally think devolving welfare policy to self-financing local government and non-state organisations would work best.
We can and should ask important questions about our relationship with the state. Why does the vast majority of healthcare and education in the UK need to be state-run? Why does the state need to employ over 5 million people, most of whom are not in front-line jobs – for instance, armed forces, policemen, fire-fighters, doctors and nurses? Might it be possible to better provide for the elderly by privatising state and public sector pensions? Why do we even need a government department for business, or international development, or climate change?
Secondly, we should ditch the notion that more public spending is good for an economy. Every pound spent by the government is a pound taken from the productive sector of the economy. The Keynesian ‘multiplier’ effect is the biggest lie in modern economics.
Since people tend to spend their money far better than the state does, and don’t have to pay for an army of public sector bureaucrats either, it’s hardly surprising that countries with smaller states and lower taxes tend to have much better economic growth.
The British Empire left behind an ethos of liberty, free markets and private property rights in places like Singapore and Hong Kong. These places are now global economic powerhouses. Perhaps our former colonies now have a thing or two to teach us about how to run an economy?
Thirdly, and most importantly, the government needs to stop finding new ways to spend other peoples’ money. Public spending should not automatically grow year-on-year. Government departments should be forced to constantly justify their budget and even their existence to Parliament.
Spending increases should be kept below the rate of economic growth, as happens already in Switzerland. The idea is a simple one: as the economy grows, the state starts to shrink as a proportion of national income.
Britain needs a revolution, and not the kind advocated by the crusty old Marxists who lead the Labour Party. We simply cannot afford to carry on with politics-as-usual.
Chris has been a member of the Conservative Party since 2010. He believes strongly in individual freedom, personal responsibility, and the power of free markets to eliminate poverty by encouraging wealth creation. Follow him on Twitter: @
The views expressed in this article are that of the author and do not necessarily reflect the views of Conservatives for Liberty.