Wednesday, March 12, 2014

The UK Economy is a long way from Happyland

You don't have to travel far to find a Conservative politician who'll tell what we need is tax cuts. You don't have to look hard to find a Labour politician who'll argue that cuts to public expenditure are a sin. But in reality on both sides they are living prematurely in Happyland - and there is a long way to go before we have arrived in such a place where either becomes possible. When we get there, if we do, then it would be useful for both main Parties to say what they would do. How we give the peoples' money back to them is a matter of ideology. Traditionally Conservatives favour lower taxes (though rarely deliver them). Traditionally Labour favours new and/or improved Public services (though rarely provides them cost-effectively). But we are so far away from the point where this debate would be for real that it is profoundly unhelpful to have it now. The hard reality is that the gap between Government expenditure (including interest payments) and Government income (primarily tax) is so large that neither ideology-driven choice is remotely possible.

The economic future is bleak. Internationally China looks highly problematic and the global spin off from a Chinese crash would catch the UK as it would all major economies. The Eurozone has made considerable progress but only a fool would say that Europe's recovery, such as it is, is assured. And in the USA there are signs of greater protectionism and inward-looking attitudes, especially on energy, which substantially decouple the world's largest economy from the rest of us. 

In Britain there is no alternative to moving towards getting a balance in the budget before any tax cuts and/or increases in public expenditure are achievable. Labour knows this and whilst there are some contradictory rhetorical flourishes from some Labour politicians which catch the headlines Miliband and Balls know that "tax and spend" would not only be a dishonest electoral pitch, it would be irresponsible. They won't do it. Similarly, as the smarter Conservatices like Mark Field are saying, to promise tax cuts when you know you can't deliver them for the foreseeable future would be to cheat the electorate.


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