The Coalition’s £100bn gamble on growth without the state

Zoe Gannon of Compass reports on the Coalition’s £100 billion gamble on growth without the state.

At the weekend Compass launched a new report which calculated the extent of this Government’s reckless gamble on our economy. The report estimates that the government is making the equivalent of a £100 billion gamble on growing while the public sector is cut, which is supported by “no reputable economic theory”.

If the coalition government loses this gamble then nearly £100 billion could be lost from the economy over the course of just one parliament.

As the report argues everyone is agreed that growth is the only way out of this economic situation, but the government’s hope is that this will come about by simply creating ‘space’ for private initiative. The Chancellor believes that the public sector is crowding out private growth – yet all the evidence suggests that far from crowding it out, public spending is propping up anemic private sector growth.

The economic recovery is still fragile, as demonstrated by falling house prices, high unemployment, and low consumer confidence levels. In this environment the cuts agenda of this government will ensure we experience a lost decade – much like Japan did in the 1990s.

Such an economic policy has no sound economic basis and as the report shows the government’s economic agenda can and must be challenged. Chancellor George Osborne argues that the state is the problem, that we must deal with the deficit immediately, that if the state is cut back the private sector will flourish and that cuts can be progressive.

The report contests each of these with economic facts and evidence showing that opposition to the cuts is essential. In the short term growth must be the priority and in the medium to long term there is an alternative to the cuts involving a renewed fiscal stimulus to encourage growth and a long term fiscal policy designed to reduce the deficit through a fairer tax regime.

A fairer tax regime in the medium to long term could include the following measures:

50% Income Tax band at £100,000 £2.3 billion

Uncap NICs and make them payable on investment income £9.1billion

Introduce minimum income tax bands £14.9 billion

Reintroduce 10% tax band and 22p basic rate -£11.5 billion

Abolish tax havens and tax ‘non-doms’ £10.0 billion

Introduce a sterling Financial Transactions Tax £10.2 billion

Public sector Cost cutting measures (Trident/Titan Prisons) £5.3 billion

Total £40.3 billion

There is a growing consensus that the Chancellor’s cuts will not promote growth and will jeopardize the future of our economy. As the report shows, this is not just coming from the left or the unions, but can be seen on the pages of the Financial Times and that hot bed of left wing radicalism, the City.

Mr Osborne argues that cuts and growth aren’t an either-or situation and that he can scalpel away somewhere between a quarter and half of departmental budgets without effecting growth. This is a false economy – this government has an agenda for cuts but not for growth.

16 Responses to “The Coalition’s £100bn gamble on growth without the state”

  1. Duncan Weldon

    RT @leftfootfwd: The Coalition's £100bn gamble on growth without the state: http://bit.ly/cqW5HA by Zoe Gannon of @CompassOffice

  2. David Ritter

    RT @leftfootfwd: The Coalition's £100bn gamble on growth without the state: http://bit.ly/cqW5HA by Zoe Gannon of @CompassOffice

  3. Ash

    Any number-crunchers out there who can answer this question for me? (It is an actual, honest question, not a rhetorical, catch-you-out question; I might be missing something.)

    If raising the income tax threshold is regressive in the sense that it tends to increase the income gap between those who are too poor to benefit from that change and those who are somewhat better off, would the reintroduction of the 10p tax band not be regressive in just the same way?

    (I’ve been curious about this for a while because the Left have tended to criticise the Lib Dems’ tax threshold rises while defending the apparently similar 10p tax band. Are we being consistent here?)

    NB I’m not suggesting that scrapping the 10p band was a noble and progressive thing to do – obviously pushing the incomes of the poor down towards those of the very poor is not the way to promote income equality, especially when you use the money taken off them to cut taxes for middle and higher earners.

  4. idle pen pusher

    There’s a ‘gamble’ in reducing the state re economic growth? Wow.

    http://idlepenpusher.blogspot.com/2010/09/economic-growth-government.html

  5. John Moss

    How do you “abolish” a tax haven?

    Or maybe you have just found a use for the old Trident missiles?

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