Eighteen months ago a new government was elected. They swept in to office full of the joys of growth. Growth is all you need, they sang.The new government won by telling everyone they were going to go for faster growth. If they could grow faster there would be more jobs and better paid jobs. Many more people would be better off. Many more would come to like them and want to vote for them. It was a great big idea.
How stupid the last government had been, they said. They had gone for austerity, depressing growth. They had not paid people enough leading to strikes and too little improvement in living standards. How easy it would be. Just spend some more and more people could be better off. If people were paid more they would spend more. If they spent more companies would have more business. They would create more jobs . Growth is all you need.
It feels like years ago as the government soon managed to double inflation, get unemployment up with public borrowing costs through the roof. The government won a huge majority because voters were very fed up with the old government they replaced. It was always a loveless win, with the government sweeping the board but only getting a third of the votes. After a year their poll ratings had halved. People wanted all that growth and happiness they had been promised. Instead they were lectured on how they had voted the wrong way on Brexit, had too much money which they should give to the state, and should understand it was all the fault of the last government and of the rich.
They were warned that they could not simply spend lots more. They told the jeremiahs that was old thinking. Of course they could spend more, as their friends in the Treasury and Bank would fix it for them. All that lovely extra public spending would magic the health waiting lists away, let workers spend more in the shops, and give us a boost from wonderful public investments. The rich would have to pay a little bit more tax in carefully set out ways, but that was only fair.
There were some nasty fiscal rules left over from the age of austerity. They would fix those. And so they did. The officials obligingly said they could get away with a bit more spending and borrowing, as long as the spending was for investments. The bond dealers would not like it if they simply borrowed more for day to day bills.
The government busied itself with finding investments it could make. They wanted to be builders, not blockers. They proposed loads of new social homes, carbon capture and storage projects and plenty of renewable energy. They decided to press on with the huge public investment they inherited for a new railway line from London to Birmingham which had become a by word for waste and incompetence. They decided to take on all the losses of the Scunthorpe steel industry, speed up the compensation for the badly run Post office and to complete the nationalisation of the railways. Spending the money was the easy bit. Other people’s money would fix it. Growth was all you need.
As they had promised to settle all the strikes in the public sector they made big pay awards. They thought these would buy them peace with their friends in the Unions. Instead the Unions came back for more. Ministers had forgotten to ask for any improvements in working practices and quality for all the extra pay. The Unions were in no mood to help them grow or to modernise.
So when they got into office they told people everything was broken and needed to be changed. They told everyone it was worse than they thought so it would cost more to fix than they had said. They would tax the rich and spend some more so all could be transformed.
They spent weeks trying out all sorts of ways of taxing people more. Instead of them becoming more popular and growing faster, people were afraid. Businesses stopped investing and hiring. People saved more.Growth stopped and confidence was low.
In the run up to their first budget they set out a whole range of possible tax rises,. They realised early if they wanted to spend more even with their laxer rules they would need more tax revenue. They promised this would be a one and done set of tax rises. They said it would not break their popular Manifesto promise not to put up Income Tax, VAT and National Insurance, the three taxes that raise most of the money. Unfortunately all the talk of tax rises to come over a long run up to a late budget hit the economy. Savers saved more. Businesses cancelled or delayed investments and new jobs. People put off buying new homes and cars. The economy sank. Instead of their bold investment led plans leading to confidence and growth the economy fell into a stupor of fear.
The budget itself was worse than people expected. The tax on working farms led to big protests and to people withdrawing from growing food. Food prices were rising too fast and less food was going to be available. Businesses stopped creating new jobs and let their workforces decline as people left, as they could not afford the big rise in the tax on jobs. The big rise in National Insurance to be paid for by employers looked like a break in the promise, and was for the self employed who had to pay more anyway. Small businesses were clobbered. Private schools were hit with VAT leading to 50 closing.
After the budget unemployment went on rising month after month. Job vacancies plunged and businesses held off investing. Some companies announced they were cancelling their investment plans and going elsewhere with their money. Richer people left the country in large numbers to go an live with a government elsewhere who would let them keep more of their own money. It is leading directly to a second Groundhog budget.
It is not possible to tax your way to growth and prosperity. The public sector is not productive enough and lets the country down with the gross mismanagement of HS2, the Post Office and many others. If another budget shifts more money from private to public sectors, it will continue the transfer from more productive to less productive with a negative impact on real incomes and jobs.
