I am going to write a few posts over the next week about the Budget, as I compile my budget submission to the Treasury.
The government’s stated policy is to eliminate the government’s structural deficit, mainly by cutting public spending. It intends to promote a strong private sector led recovery, to create more jobs, cutting the welfare bills and employing labour shed from the public sector.
I entitrely agree with the stated policy. It think it would work well. As readers of this site will know, the problem is not the strategy, but the fact that the government is not following it.
Instead of the stated policy, the first two years have seen a tough squeeze on the private sector, and continued expansion of public spending. Annual current public spending is now £52 billion a year more than in the last Labour year, an increase of 8.7% in cash terms.(Red Book 2011 p 93, Autumn Statement 2011 p 77) When I first pointed this out the government and media response was that there would be real overall cuts despite the large cash increases. Now the latest government figures confirm my view, that the first two years (2010 and 2011)have seen a real increase in overall current spending. (Autumn Statement 2011 p 17 Table 1.1). Individual departments have been cut, but others have grown.
The private sector has been squeezed partly by policy and partly by inflation. Large increases in tax rates on incomes and capital gains have hit the people most likely to set up and invest in new businesses and create jobs. Increases in VAT along with big rises in enegry prices and other basics have cut living standards and reduced disposable incomes.
My pre budget posts will explore what can be done to lift the squeeze on the private sector, to get control of public spending, and to get back onto the planned policy track set out at the beginning. If you want a private sector led recovery you need to have bank facilities, tax rates and cost levels that facilitate faster growth. You need optimisim and confidence. Lifting the squeeze on the private sector is necessary to bring that stronger recovery about.
Now is the time to take action to do this. Inflation is at last coming down. Energy prices have started to fall. Food retailing is going to become ever more price competitive. The government needs to reinforce these favourable trends by a number of policy actions. I will be looking at the tax action, the bank action and the regulatory action the government could take to assist.