How do we get Britain’s economy growing again? Watch the STRICTLY BUSINESS debate on bringing back growth
By peacetime standards Britain’s national debt, the accumulation of years of government borrowing, is uncomfortably high.
Yet that is no excuse for a Tory administration to abandon efforts to boost our national productivity and growth.
Unless Rishi Sunak and his Chancellor Jeremy Hunt recognise that high taxes are choking off business investment and denying workers an incentive to work harder, they risk locking the nation into a doom loop of ever rising taxes as it battles to get the national debt under control.
In a largely unheeded section of his Autumn statement, in which he piled on the agony for business and enterprise by rescinding pledges to cut corporation tax and bought into a Labour-LibDem agenda for windfall taxes on the oil and gas industry, Hunt spoke of his goal of making Britain the new ‘Silicon Valley’. But the only way to do that is to pursue a growth agenda.
No one wants a repetition of the Trussonomics experiment of September last year. The goals of the tax cutting mini-budget were laudable but the execution was amateurish. It offered traders on the financial markets a golden opportunity to bet against the pound and the price of British government stock.
Truth is that Britain’s underlying fiscal situation is infinitely better than most of our competitors, with the exception of Germany.
Take the parlous state of the US economy. President Joe Biden’s Treasury Secretary Janet Yellen, who had the temerity to lecture Kwarteng over unfunded tax cuts, has presided over a spending spree that has taken the federal government to the brink of shutdown.
Last month it hit the debt ceiling, established by law, of $31.4trillion (£25trillion) or 122 per cent of the almighty American economy’s total output.
That is ten times Britain debt of £2.5trillion, or 87 per cent of the nation’s output, according to the International Monetary Fund.
Meanwhile, France is in the crosshairs of the IMF thanks to a debt level which has surged to 112 per cent of GDP.
Despite this, Sunak and Hunt have bought into the narrative that Britain is some kind of budgetary pariah, with no room to manoeuvre on taxes. This is a canard that should be banished from public discourse.
The Bank of England’s latest forecasts on GDP did not make pretty reading
Take the recent figures for the December public finances which the Financial Times reported under the headline: ‘Borrowing in December doubles to a record’. A drill down into the figures reveals a very different story.
Borrowing represents the difference between two very big numbers: what the government spends in any one month and what it collects in taxes and other charges. But the statistics are distorted by substantial one-offs.
In the case of December, the result was distorted by the ‘energy price guarantee’, with pay-outs and subsidies to help households and companies cope with spiralling fuel bills accounting for £6.7billion.
The interest rate bill on the national debt of £17.3billion is also misleading. It is based on high interest charges which are likely to fall sharply as inflation subsides this year and next.
In other words the budgetary crisis is much less severe than portrayed.