With the economy beginning to grow there are inevitably those who are clamouring for a relaxation of “austerity”. Not only would this be economically wrong (as any austerity has been modest at best), it would be a grave political mistake. The Chancellor’s statement this week offers the opportunity for the Government to entrench the path back to fiscal responsibility and to set out a clear political and ideological difference with Labour.
It is time for the Chancellor to return to his theme of sharing the proceeds of growth. This time, however, the sharing should be between deficit reduction and tax reduction to help give our economy and the next generation the ability to fully compete in the global economy.
Every penny that we spend beyond our means not only adds to our national debt, but results in a further increase in the debt interest that we have to pay. Between 2010/11 and 2015/16 total departmental expenditure will have fallen by around 14 per cent while debt interest will have risen by around 16 per cent. Next year, the cost of servicing debt will outstrip education to become the third biggest government expenditure. The fact that we are spending more money on debt interest payments than educating our children is the clearest legacy of the spending plans inherited from Labour.
With the level of borrowing this year expected to be considerably lower than previous estimates, this is an opportunity to cement the concept of sound fiscal management and expose the real danger that Ed Miliband and Ed Balls pose to our future prosperity. Labour went on a massive spending spree that raised public spending from £309 billion in 1997 to £647 billion by 2010. That increase, from 40 per cent to 52 per cent of GDP, represented the fastest growth in public spending in Europe.
They not only spent money they didn’t have, they created massive bureaucracies and enmeshed millions in the trap of welfare dependency. It is time for us to accept that the days of such spending are part of our history and that we will never return to such recklessness. Conservatives must set a path to a permanent reduction in government spending as a proportion of national wealth.
I have previously set out how a freeze in public spending in cash terms for three years to five years would produce cumulative savings of up to £350 billion and leave spending totals between £70 billion and £90 billion lower at the end of the period. In the next Parliament, we must also wean ourselves off the disabling effects of the ring-fencing that not only limits flexibility within government budgets but produces huge distortions in a contracting total budget.
Finally, we must recognise the strategic cost of our debt. In the UK, we are spending more on debt interest than on defence, the foreign service and overseas aid combined. This year, 21 out of 28 Nato members will spend more on debt interest as a proportion of GDP than on defence. This has potentially damaging effects on our long-term ability to maintain our collective security.
In the short term, back at home, there is no doubt that many people have felt the pinch, with wages rising more slowly than prices. If there is a cost of living problem, the obvious solution is to take less out of people’s pockets. If energy prices are too high, then the Government should reduce the taxes that are pushing prices up — not to mention the amount of tax that we pay at the petrol pump. If people are finding it hard to make ends meet, then the Government should take less of their hard earned income. None of this is rocket science. If you want to deal with the cost of living, Mr Miliband, then don’t take so much of people’s earnings.
It is time to turn the tables on Labour. The Conservatives bought into a wrong-headed policy of matching Labour’s spending plans in the last decade as a means of “decontaminating the brand”. Now, rather than promising to spend more, we should promise to tax less and dare Labour to match us. It would be wonderful to watch their bizarre justifications for either taking more money from the already hard-pressed or raising our debt still further.
A low-tax economy will not only help us to compete globally, it will help household budgets when the cost of borrowing inevitably rises towards historical norms. Many consumers have forgotten, in an era of unusually low interest rates, what normal rates of mortgage repayment will look like. Households cannot be expected to pay for their own borrowing (even if a substantial amount of it might have been irresponsible) and carry the burden of taxation for bloated public expenditure. Lower taxes will be required for both economic and political purposes.
The first rays of sunshine are finally reaching the British economy. The Chancellor has an opportunity to start fixing that roof that Labour never bothered to do — he should seize it.