Thursday 16th April: The Economy is now central to the 2015 Election battle, with party leaders lining up against rivals’ pledges. All appear to promise more government/public spending on favoured causes, and a change in tax regime, either higher, or more complex, or both. However, behind the pledges and the party politics are a number of fiscal fallacies, says the economist, David B Smith. He explains the economic flaws behind the political pledges. The consequences could be felt throughout the system in the years to come by business, by people themselves and the wider economy. Not only is Britain's economy too small to sustain such high proportion of public spending levels, but by ignoring the rules of sound taxation, this country and its people will be all the poorer. As David B Smith writes:
The conceptual sophistication with which the public spending and tax options are being discussed in the pre-election political debate, strikes many economists and tax specialists as pitched at a sub-primary school level. A number of basic but inconvenient truths have been ignored by almost all the political parties currently lobbying voters. Here I set out ten.
Friday 10th April As this election rumbles on, getting increasingly boring by the day, the folly of the new Fixed-term Parliaments Act 2011 becomes painfully apparent. It is a good example of too much democracy, a constitutional change emanating from the Liberal Democrats and enacted as a term of the coalition deal.
Prior to the passing of the Act the Prime Minister had the power to decide when to dissolve Parliament and call a general election. It was in fact the exercise of the Royal Prerogative on the Prime Minister’s advice to Her Majesty - just the kind of ‘undemocratic’ power to which many Liberal Democrats are opposed. Two consequences flowed from that power: first, the threat of an election was often sufficient to persuade recalcitrant MPs to behave themselves; and secondly, it made the Prime Minister of the day think twice about calling a general election mid-term as he would run the risk of losing it. In 1973 Edward Heath called a snap election on the issue of ‘Who runs Britain the Government or the Trade Unions?’ The electorate gave its answer: it was not Edward Heath. There was further the danger to a Prime Minister who hung on too long until the very end of the five year term.
Friday 20th March: The Budget confirmed that the economy is recovering, inflation is low, the deficit is falling and low borrowing costs have allowed old debts to be refinanced at cheaper rates. Also, according to the Chancellor's plans, there will be a budget surplus by the end of the next Parliament which would then allow the national debt to start falling from a higher level. That was the good news, says Dr Gerard Lyons, commenting on this week's Budget.
By sticking to his plans, the Chancellor has put a marker down for the Election with the post Budget debate focusing almost exclusively on deficit reduction and whether planned spending cuts outside the ring-fenced areas are justifiable or credible, who has suffered or gained and asking questions as to what would be the alternative.
Whereas the BBC has recently sparked an unnecessary and misleading comparison of public spending levels with the 1930s - not comparing like with like - perhaps it is the 1950s that warrants more attention. For, in that decade, Britain's post war debt levels became less of a worry, because of strong economic growth. Just as a mortgage needs to be looked at in relation to the value of a property, so too should debt be seen in relation to the size of the economy, as measured by debt to GDP.