Wealth-creation
John Seymour asked the following in the 15 April edition of the Maidenhead Advertiser:
"We're now being bombarded every day with new manifesto promises from all the parties. These promises all distract attention from the basic question, which should be asked of every candidate.
Since the decline of North Sea oil, the British economy does not generate enough wealth to support our standard of living. We have been able to keep this fact hidden in recent years by building up debt. This level of debt is no longer sustainable.
Everything else politicians would like to do ultimately depends on getting wealth generation higher than spending. How do you propose to achieve this?"
To which, we would reply:
Mr Seymour is absolutely right that our priority must be to create more and consume less of our wealth.
Much of the responsibility lies with us as individuals. It will only make matters worse if government tries to step in directly to create wealth or manage our consumption. But government has a leading role to play: firstly in cutting its coat to suit its cloth, as we all must do, and secondly in removing the many obstacles to wealth-creation and incentives to wealth-consumption, which politicians have erected over the years.
When we hit our credit-card limit, we know that we have to cut our spending to less than our income, to pay down the balance. Those who keep spending above their income have to pay much higher rates of interest to less scrupulous lenders, and quickly get into more trouble.
Last year, our government ran up the biggest credit-card bill in our peace-time history. In just one year, the amount of interest we have to pay on government debts has increased by over one-third, to more than the total defence budget. We have hit our limit, and yet all the mainstream parties propose to run up almost as big a bill this year, and so on for the foreseeable future.
If our government were a household, it would be taking home £30,000 but spending £40,000 a year. The main parties would be like mum, dad and grandma arguing about whether their pay-rise will be big enough to cover four or five holidays this year, and whether they should have Sky Sports, Sky Movies or both, when their employers actually need them to take a pay-cut if they are not to go out of business. In reality, if the family don't want to end up borrowing from the doorstep lender, they'll have to have no holidays, no Sky, sell their second car, work second jobs, and so on, probably for several years. But they can't face telling the kids, so they keep making plans to spend money they haven't got.
The single-issue parties, meanwhile, are dotty relatives who pop round occasionally to explain that the household's problems could be solved if they gave up membership of Club Med, or stuck a windmill on the roof, or kicked the Polish plumbers out of town.
Over the past decade, government spending has increased by over 50% in real terms. We have to get it down immediately and aggressively, enough not only to cut the amount we need to borrow, but also to cut the wages (taxes) that government's employers (us) have to pay. Unlike the other parties, we have set out how we would do that this year, cutting spending by £109bn while cutting taxes by £25bn, leaving a deficit of £76bn (just over 5% of GDP, less than half what the main parties have planned). With modest growth, inflation, reduced employment costs, and asset-sales, we should convert the remaining deficit into a surplus within a few years, and start to (a) pay down the balance on the massive debts that our main parties allowed to build up, and (b) make further tax-cuts to encourage wealth-creation.
On top of this, we also need to change the bad incentives that government has created, which affect how individuals contribute to our wealth-creation or -consumption. In particular, we need to reduce the disincentives to work that have been created by our tax and welfare system. We have proposed a radical overhaul that would simplify the system and remove the high marginal rates of effective taxation on employment, which keep people under-employed.
We would make local authorities rely much more on revenue raised locally, including the repatriation of business rates, and change the planning system, so councils would have incentives to encourage appropriate wealth-creation in their area.
We would remove unnecessary regulations and other bureaucratic burdens, and where those burdens come from Brussels, we would make it clear that we would leave the EU if they did not agree to the necessary derogations and cuts. As net contributors to and importers from the EU, our politicians repeatedly underestimate the strength of our position
We would scrap the mass of grossly-inefficient and complex interventions in the energy market, replacing them with a simple tax to encourage a reduction in our dependence on fossil fuels. We would use the revenue to reduce taxes on employment and to protect individuals and businesses who would be vulnerable to higher energy costs, to encourage a high-employment, high-efficiency economy. One effect of energy-tax rationalisation would be to significantly reduce taxation on road-users, who are currently over-taxed, which would help to get people and businesses moving again.
There are so many things we need to do to correct the current imbalance between wealth-creation and -consumption that it is impossible to list them all here. You can find many more detailed suggestions on our website. What you will see there is that, unlike other parties, we are facing up to the serious problems confronting our nation, and being honest with people about the radical changes needed to deal with them.