This week the National Centre for Social Research released its 28th British Social Attitudes Report. For the BBC it made disturbing reading. The proportion of people who think we should pay more tax to improve health, education and social benefits has fallen. A decade ago, 60% of us were all for it. Today, it is 30%.
The BBC’s conclusion? Britons are “less willing to pay taxes to help others”. But is that really true? The Institute of Economic Affairs (IEA) suggests, I think rightly, that the BBC is looking at things the wrong way around. Ten years ago we all paid rather less tax than we do now, so it might have made sense to us to think that if we paid more, things might get better. Today, after a decade of fast-rising taxes, it doesn’t look quite the same.
Instead, as the IEA says, with state spending already over half of GDP, most taxpayers probably “believe that more government spending is not the answer” to our problems. They’d prefer tax cuts to tax rises. Sadly, this isn’t a view many politicians share. Our leaders – of all parties – continue to treat our crisis as something of a blip. They assume it won’t be long before somehow things return to “normal” and we carry on as before: living on cheap credit and massive state spending.
But that just isn’t possible. The capital misallocation of the last decade stole growth from the future: the only way we could grow properly from here would be to go back in time and somehow bounce the economy onto a path made with the correct yield assumptions, one in which real money was invested in viable businesses. Failing that, there isn’t much we can do short-term other than knuckle down and deal with the debt.
In the medium term, however, we can act. We can set things up so that we move on to the right path as we leave the debt behind us. That means doing two things: recognising that the areas which once looked like they were giving us growth (finance, property, retail, state-funded health and education and so on) no longer can; and then doing all we can to promote new businesses that can give us growth. Think huge tax and regulatory cuts for small businesses.
It also means a significant drop in the size of the state in order to allow major tax cuts for the rest of us too, especially for lower earners. Broker Tullett Prebon has written a good report on this. I’ve put some of its thoughts up here, but we would also welcome your ideas, large or small, on just how we can cut the state down to the right size.
Finally, an invitation. You might enjoy my letters or you might, like many others, be maddened by them. Either way, if you fancy discussing it in person, you can bid to have lunch with me on eBay. The proceeds go to Sightsavers – a cause I think we are all willing to give something towards.