Ruth Porter is the Communications Director of the Institute of Economic Affairs.
It is hard to be optimistic about our economy at the moment, but if we want to shake the pervading gloom we have to do something about it. Economic growth will not come unless we make it.
Despite what the Chancellor says, Britain is not a “safe haven” and our economic situation requires urgent action now. This government will add more than £350bn to the national debt over the course of this Parliament. It will spend 50.1% of GDP over the course of this year. Cuts in government spending over the course of this Parliament will be at the rate of less than 1% per annum. Unless we see greater growth the deficit will not even be closed by 2015. Not cheering reading even before we consider the global context.
Chancellor George Osborne has claimed credit for putting Britain’s “house in order”. There should be no doubt that his approach of reducing government spending has been “vindicated”. Ed Balls’ failure in the House last Thursday to acknowledge the culpability of Labour’s high spending policies was almost laughable.
However, the government’s plans are only a start. There is much more that we can do. Talk of a radical agenda and plans must now turn to action. Last autumn we had a spending review; now is the time for the growth plan. At times like these there may be limits to what governments can do about sluggish growth but thankfully we are not entirely helpless. The time has come for radical reform of government and a reduction in its size, combined with radical supply side reforms.
Every crisis, however large, is an opportunity; things become possible that cannot be done normally. This is an opportunity that may not come again for the coalition, a chance for them to show what they are made of. Only radical change stands any chance of delivering the thriving economy they need by the next election. George Osborne has spoken with insight, but for too long. Words can only take us so far, it is now time to see the action. A robust growth plan needs to be implemented if we are to find our way out of the mire.
Imagine if this autumn brought specifics on a second round of spending reductions, funded through proper reform of departments like BIS, DCMS and DfID. Imagine a reduction in government spending, bringing it closer to 30% of GDP – a move that would deliver an extra 0.7% growth a year for the economy. Imagine a drastic liberalisation of the planning system. Imagine labour market regulation overhauled – the minimum wage regionalised and regulatory burdens such as health and safety and Equality Act reporting lifted off businesses. What if the government decentralised bargaining for pay and pension benefits for public sector workers, allowing major regional and sectoral variations. Imagine then the huge tax cuts we could see allowing people to spend more of their own money. As growth returned to the economy we might then feel hopeful once again.
Britain may not be in the full force of this global storm but it is certainly not a “safe haven”. Buffeted by the dual winds of European debt and US crisis, weighed down by burdensome regulation, spiralling debt and economic paralysis – it is time for some optimism, for positive action and change. As the residents of Clapham flooded the streets with brooms, let us claw back Britain from government-induced stagnation, the drag of regulation, the generational devastation of mounting debt and the stultifying effects of over-taxation. Let us have reason for optimism.