We are deep into the fanfare of speeches and articles that herald the coming of the budget each year. By now the chancellor’s ears will be ringing with ideas from all corners that will range from the incisive to the plain idiotic. Leaving aside whether the annual budget itself is an anachronism, we are once again in danger of focusing so much on proposed individual measures that we lose sight of the underlying narrative.
Our policies should be about the type of behaviour we want to encourage and the type of country we want to be, not simply how much money the government can raise. Our economic policies must be about what we believe and must reflect our values. Economic policy is not merely pounds, shillings and pence. It is the compass from which all other policy areas find their direction.
History will judge Gordon Brown and his disciples harshly — certainly more harshly than they, even now, judge themselves. They spent with abandon, rolling out the socialist vision of a big state. But, much worse, rather than diminishing the reliance that individuals have on the state, they purposely pushed the drug of welfare addiction to more and more people, ensnaring even the affluent middle classes.
Today we see the full destructive consequences of that behaviour with ordinary families paying too much tax so that it can be given back to them in benefits and credits, to no one’s advantage other than the army of bureaucrats needed to administer it. It is debilitating for society, demeaning for individuals and expensive for the taxpayer.
The progress of the Conservative-led coalition has been encouraging. A quarter of the deficit has gone; more than a million private sector jobs have been created and we’re delivering reform to the education and welfare systems that will make this country more competitive in the future.
However, at the end of this financial year our public sector net debt will be about £1,200bn and we will be paying more than £47bn in interest payments alone. That makes our debt interest the fourth biggest recipient of public money in Whitehall. Only welfare, the National Health Service and education (just) receive more. It is more than our defence, Foreign and Commonwealth Office and international aid budgets combined and is more than twice the combined budget of the Home Office and the Ministry of Justice.
More menacingly, our interest payments are forecast to rise further so that in 2015-16 we’re likely to be spending more on servicing our debt than we are on the education of this country’s next generation.
We must be clear that we don’t have this debt mountain because we tax too little but because we have spent — and because we continue to spend — too much.
We should not spend money we don’t have and we should not live beyond our means today only to pass our debts to future generations. We all know that we live in a competitive global economy, but how many people are aware that the world’s GDP has grown by 55% in real terms from $32.3 trillion in 2000 to $69.7 trillion in 2011? The problem is that we are not sharing in this growth because we are overtaxed and overregulated and we spend and borrow too much.
The prime minister was right to indicate that there is no realistic alternative to continued downward pressure on state spending. We need to make it clear that this is no short-term cyclical correction but a much longer structural shift of a decade or more. It has been forced upon us by the dual forces of globalisation and our own irresponsible spending habits.
As a Conservative, I am not scared by such a course. I believe the country will be at its best when the government is small and people are left to enjoy the fruits of their labour.
We must supplement a more frugal state with a clear narrative in taxation. Among the many iniquities that create the wrong patterns of behaviour is the multiple taxation of the same money. We pay tax on our income. Then if we save we pay tax again. If we invest in businesses or property and try to move our money we are hit by capital gains tax or stamp duty.
Finally, if we have the audacity to die we get the indignity of inheritance tax. If we want to create a responsible society that understands the concept of putting something away for a rainy day then this pattern of taxation must end. Taxation policy cannot simply be judged by the ringing of the Treasury tills — it must have a coherent narrative that describes our values as well.
Sustained lower spending and a more sensible and consistent tax approach is a start on the path to creating a society that is sustainable for the future in the way that our current — welfare-dependent and debt-ridden — economy is not.
We need to centre the debate on wealth creation, not spending. When the people of our country are more affluent, the government coffers swell too. We have danced to the socialist tune of big state, big spend and big taxation for too long. We must argue for a free market, welcome the wealth creation that creates jobs and reward the risk takers who make progress possible.
It is time that we set a clear philosophical course — rediscover our true north — and rebuild an economy that is leaner, more agile and better prepared to compete in the modern world.