To Grow Faster, Go Further

Growth is anaemic, that much of the Balls critique is true, the cause is not the government’s spending cuts, they have barely started, the £6 billion down payment on deficit reduction is not even 1% of GDP. Some of the reasons are external; US economic doldrums, Japanese earthquake related supply-chain disruption, cost push inflation and some are internal; lack of business and consumer confidence, difficult credit markets and rising interest rate expectations. So what is to be done?

The IMF report recommends

“…tax cuts are faster to implement and more credibly temporary than expenditure shifts and should be targeted to investment, low-income households, or job creation to increase their multipliers… Simultaneous adoption of deeper long-run entitlement reform would be desirable to safeguard fiscal sustainability and market confidence…”

It also points out that

“The level of public spending as a percentage of GDP in our forecast has reduced by about half a per cent of GDP as compared to the previous fiscal year. However, it remains very far above the pre-crisis levels of spending and represents a long-term high in spending. It’s important to maintain that perspective”

Plan B, the Balls plan, is for higher taxes and more spending, the same plan Brown had which took us to the brink of bankruptcy with the biggest government deficit in the G20. That can be dismissed as a failed ideology, now tried for 13 years and tested to destruction. If faster growth is required the IMF actually recommends an accelerated Plan A, “Plan A+”, cutting taxes for those on low-incomes, cutting welfare payments to those who are healthy yet on long-term unemployment benefits and cutting overall government spending back to where it was before Gordon. The UK is cutting public spending slower than Obama and at a rate slower than even the EU average.

The IMF’s Plan A+ to boost growth should be considered along with supply-side reforms to boost business confidence, if we rolled back government spending there would be more room for income tax cuts to boost consumer confidence. If we want more private sector jobs and to grow the economy fast and sustainably, Plan A+ makes sense. Preferably sooner rather than later.



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Quote of the Day

Former Miliband guru Arnie Graf reveals Labour’s disconnect with the working class:

“On one of my trips to the U.K. in the autumn of 2013, I bumped into one of Ed’s strategists in Portcullis House. He asked me if I was assisting the staff on Ed’s trip that was to take place in a few days to one of the regions. I told him that I did not have knowledge of his planned trip.

He told me that Ed was going to give a talk at the region’s annual fund raising dinner and that prior to the dinner he had invited the media to join him at a local coffee shop to listen to a conversation he planned to have with a minimum wage worker. The point of the conversation was to show how difficult it was for a minimum wage worker to get on in life.

There was only one problem. No one had been able to locate a minimum wage worker for Ed to talk with.”

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