Ruth Porter: Sharper Axes, Lower Taxes – The British people agree
Ruth Porter is Communications Director at the Institute of Economic Affairs.
Sometimes politicians are so busy worrying about what the public thinks they don’t listen properly. Far from being opposed to the coalition’s plans to reduce government spending, the public don’t think the plans go nearly far enough.
Today the Institute of Economic Affairs (IEA) releases a major new report, Sharper Axes, Lower Taxes, setting out what the Comprehensive Spending Review should have looked like and examining the tax implications of radical changes to government spending and the functions of government. The total package saves the government an additional £215bn a year by 2015 on top of the coalition’s plans. This gets public spending down to just below 30% of GDP, instead of the 40% planned by the government, and would enable major tax reform that could deliver the equivalent of £7,500 per household in tax reductions.
We commissioned ComRes to undertake polling on government spending and found that when given a straight choice between the IEA’s plan and the government’s, 70% of the public were in favour of the IEA’s plan. Asked more generally on public spending 55% (of those who expressed an opinion) believe government spending should be 35% of national income or lower. Significantly, the youngest were the most radical with 67% of those under 25 and 69% of those between 25 and 34 supporting government spending being reduced to 35% of national income or lower.
Importantly, each contributor to the IEA’s report looks not just at how to save money, but also at how to achieve the objectives of government at much lower cost. For example: one author proposes changes towards a Singaporean healthcare model with personal health savings accounts together with catastrophe insurance for the bigger health risks; another proposes the replacement of all road taxes with road-use pricing; and a further author suggests a move to a Negative Income Tax with household tax allowances in order to create much better incentives within the welfare system and end the discrimination against family formation that has so vexed Iain Duncan Smith.
Not only would this plan save the government money, fund tax cuts and allow people to obtain better services, it’s also clear that further reductions in government spending would encourage economic growth. One of the authors estimates that it is likely that the implementation of the proposals would see Britain’s economy grow by an additional 0.75% per year.
This all leads onto an important question about how well the coalition is communicating and listening. Worryingly, the poll we commissioned found only 9% of people understand that the coalition is set to add £350bn to the national debt over the course of this parliament. 70% think the coalition is reducing the national debt by that amount, while 21% think they will not be adding to or reducing it (surely a reflection of the vastly over-blown media hype surrounding the government’s so-called cuts). But despite this ignorance, the vast majority of people still support much greater reductions to government spending. The public understands the need for fiscal restraint by government and seems intuitively to understand the public policy truism that people tend to spend their own money better than someone else’s.
Commenting on the report, Dominic Raab calls it “swash-buckling” and John Redwood credits it as a “source book for making more progress in getting spending to a level taxpayers can afford”. Renowned historian Andrew Roberts declares: “As George Osborne struggles manfully to save Britain from the disastrous inheritance of a Labour Government which for 13 years spent like a drunken sailor on shore leave, the IEA has ridden to his aid by itemising billions in potential savings for the ravaged, ill-used taxpayer. This is the British equivalent of the Republicans’ inspiring Ryan Plan in America; a manifesto of genuine hope in the future, rather than the tinsel variety offered by Barack Obama. Sadly, not all the IEA’s ideas are immediately deliverable because of the exigencies of coalition politics at Westminster, but by merely putting these radical, innovative, far-sighted, brave and overdue options in the frame, the IEA has refreshingly reminded us that conviction politics did not die when Margaret Thatcher was overthrown a generation ago.” But in light of public opinion the proposals in our report no longer look so “radical” or “brave”; these are mainstream ideas backed by supporters of all parties.
The coalition should be encouraged that the British people are solidly behind them, but they want more transfer of autonomy from the government to the people – where are the announcements of further savings in government spending that will enable radical tax reform and drive economic growth?
This work is one of the longest (at 300 pages) and one of the most comprehensive the Institute has produced in its proud 56 year history. Our aim is to change the intellectual climate of opinion rather than primarily to change David Cameron's mind today. But we hope the government will take these proposals seriously and consider what more it can do to restore Britain to a place of economic prosperity, with outstanding services – privately provided, but sometimes government financed – and a culture of personal ownership and responsibility.