Expect endless economic idiocy in the commentary this week. We will be told that slow growth is the result of the “cuts”. Most will fail to remind us that public spending was up 5.3% last year (more than inflation), and is forecast to rise 3.8% this year (more than forecast inflation). Most will fail to remind us that so far this year public borrowing is as high as last year, at very high levels. How much more borrowing do these people think the UK public sector could get away with? Have they learnt nothing from Greece, Portugal and Ireland? Don’t they understand borrowing is just deferred taxation?
Slow growth is the result of weak banks, low rates of money and credit growth, high inflation and high taxes. If the public sector spends more, the private sector is made to spend less to pay for the public sector by tax rises. That squeezes consumers more , leading to further falls in real incomes.
As often reported on this site, the last year has been the tale of two sectors. The private sector has been squeezed to help pay for the public sector. Labour and Coalition tax increases have raised Income Tax, National Insurance, Oil taxes, bank taxes , CGT and VAT. The public sector so far overall has had extra spending power. Many commentators have muddled up which sector is being squeezed. The public sector has to live with much lower rates of cash spending growth in the second half of this Parliament, according to the plans. Most of the debates about “cuts” have been about future cuts. The rest is down to decisions about which areas get larger rises than average and which get falls to help pay for the increases elsewhere.
What could the government do to speed growth? As said here many times, mend the banks, cut tax rates on earning and enterprise to raise more revenue, deregulate, and invest (using private capital) in energy and transport improvements.