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Saturday, April 18, 2009


From Labour MP Frank Field's article in the Spectator in which he faces reality with unflinching honesty. The governments borrow & spend programme cannot work because:

It is difficult to overdramatise the danger that is engulfing our country. In some ways our position is more precarious than in 1940 when we stood alone against the Nazi tyranny.

The danger can be stated easily enough. Far from building up reserves during the latter stages of the boom, the government went on a borrowing spree amounting to £200 billion or so. This borrowing disguised the fundamental structural imbalance in our national accounts. No government, however intent on making the pips of the rich squeak, has been able to raise in taxation more than 37 per cent of our gross domestic product. It is as though one of Adam Smith’s invisible hands has constructed a lead ceiling over the amount of income governments can lift off us taxpayers...

But no such ceiling operates on government expenditure. The most profligate of administrations spend up to half of all the income we create to finance what appears to have been a never-ending extension of public projects...Clearly no one, including the government, has much idea yet of the true magnitude of borrowing. The last guesstimate put it at £360-380 billion over the next two years...

The House of Commons Library has calculated for me what the G8 governments will attempt to borrow over the next two years. The sums are of gobsmacking proportions: a debt total of $2,245 billion this year, rising to $2,521 billion in 2010. The sheer size of these figures expresses our vulnerability. In contrast, in 1940, we had allies in the Commonwealth, particularly Canada, who gave us huge sums and, like America, lent us further monies so as to balance our war budget. Now our allies are part of the hunt for likely lenders.

If we comfort ourselves that there is that kind of money somewhere out there to be lent, we should be distressed that there will be, to put it mildly, a degree of competition between the possible destinations for that available cash...

The government not only has a moral duty now to cut public expenditure, but may be forced to do so by its inability to borrow on the scale necessary. The price demanded for a continual and adequate supply of credit will be to begin now — and not after the next election — the Herculean task of bringing government spending nearer to what it can raise in taxes. This lead ceiling on tax levels should make any government cautious in thinking it can tax itself out of these debt levels. It might be worth trading in the 45 per cent tax rates, which the IFS believes will pull in little new revenue, for allowing pension contributions at the standard rate of tax only, with perhaps £5 billion being added annually to the revenue stream. But tax rises can only play a modest role in closing the enormous gap in the national accounts.’s worth going for a cash ceiling on all public expenditure programmes. The drive must then be to ensure that falling real budgets result in increased output. This goal will not be easy to achieve and it will require a serious budget devolution so that entrepreneurial skills that are within the public system operate to full effect. But there will be no escaping the need to take out whole programmes if there is any prospect of bringing expenditure down merely towards tax revenue levels ...The annual £180-190 billion gap will take some filling...

But the threat to the country’s solvency is now so serious that both opposition and government need to use next week’s Budget on what needs to be done this year to begin rebuilding the country’s solvency.

As Tam Dalyell used to be the moral conscience of Labour so Frank Field is its economic brains - which is why he got fired from the Cabinet for 'thinking the unthinkable' in terms of social security reform.

Hat tip to Iain Dale who mentioned this though he chose different bits to quote. I commented on there in relation to the first highlighted section

"I'm sure Mr Field thinks this is indeed a practical ceiling - that above that level it is so much more worth working in the black economy, or in Switzerland, or in taking up even the most expensive tax fiddles or just putting one's feet up that this is indeed a ceiling. In which case he is right that government spending simply cannot permanently be above that.

I wish those on the opposition front bench could also give such an unflinching recognition of reality.

We should have some serious discussion as to what proportion of the economy ideally should be government spending - I would guess 15% as the economic optimum & a poll I ran on my blog said under 20%. Mr Cameron seems to be afraid of saying anything in case it might be controversial."

By comparison Cameron's Conservative shadow cabinet are going along with Labour's increase of top end income tax to 45%. Now I do believe that income tax should be higher at the top end as it provides a negative feedback system limiting wealth disparities (Marx's theories are based around that lack) but it would be far better to cut taxes at the bottom than increase them at the top. Field is quite correct that this will not really increase the money the Exchequer takes & Cameron is showing cowardice in not being willing to say so. I very much hope that some backbench Conservatives make use of this gauntlet Field has thrown down & at least ask the PM or Chancellor & leader of the opposition if they agree that a tax take of over 37% of GDP is practical.

I have previously tested what amount of GDP the electorate would like government to be spending & it came out at 10-19%. I have also said how we can, with the will, not only get out of recession but into strong growth & nobody has felt able to deny that it will work.

Your test was a poll in which 44 people voted- I'm not sure that that really represents all of the 60 million people that live in the UK!
Obviously Norman & I would be interested in seeing one of the more reputable pollsters doing it. However this & similar poll Mark Wadsworth is doing have come up with extremely clear results & as pollsters prove a small sample is credible.

I am sure that if the LibDims thought they could get a poll showing that the polulace supports one of their positions with that degree of enthusiasm they would do so.
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