Writing in the FT, Martin Woolf argues that the Treasury should lop off the hand that has kept taxation low and spending low and steer the ship of state to a European style welfare system of high taxation, high benefits and high economic growth. His central argument is that ….
His analysis of recent events is lucid
Brexit allowed the country temporarily to transfer anger and disappointment to a nationalist cause. Then came the overwhelming shock of Covid-19, which transferred attention to something even more pressing and opened the fiscal floodgates. Now, we return to normal. The problem, as the Office for Budget Responsibility will make clear, is that it will be an unpleasant normal, despite an unexpectedly strong economic recovery. It will be made even more difficult by the substantial costs to individual households and businesses of lowering their carbon emissions.
Woolf concludes that while macroeconomic stability matters, there must also be confidence that governments are able to bring improvement.
We can’t have it all
Every indicator tells us we will have to have a bigger welfare state to deal with
- An ageing population with burgeoning demand for state provided care for the elderly
- A deteriorating planet making greater demands on the state to protect us from natural disasters.
The Government seem intent on making this the business of the private sector though initiatives to reform how much we save and the way we save. I support these measures but they may not be enough.
I agree with Martin Woolf that we will need not just a bigger welfare state for the old but bigger welfare support for those “just getting by” and those not getting by at all. This means reversing the trend to reduce benefits and services that are targeted at the poor and increasing taxation on working people and corporations who are currently paying too little to support an expanded state.
And that means people like me having to pay more not just in income taxes but in capital taxes too. It seems absurd to me that we find it socially acceptable that rich people avoid stamp duty on property by converting property into a corporation. That a former socialist prime minister is found to have done this , suggests that “paying our dues” is no longer part of the social contract, even for those who espouse equality.
How much less likely is it that a Conservative Government will tackle the big tax and spend items?
If I am sounding Corbynite, then I have over stepped my position. I don’t see Britain returning to class conflict that characterized the politics of my youth. Those days are hopefully gone.
But I remember my Dad, after he had been the only non-conservative leader of Dorset Councils telling the Guardian
‘The Tories had been spending the money on roads. I admit that since my time as leader, the roads in Dorset have deteriorated and I’m not ashamed of that.’
Happily – under the title “bus back better“Dorset County Council is returning to the policy of funding rural busses , promoted by the Liberals in the mid 1980s.
Despite the driveways of the cottages of Dorset villages are now packed with Chelsea Tractors, there are still many older people who are not getting much beyond their garden gates. They will be pleased
But we must all accept that we will not be able to spend as we have on the comforts of a high-carbon economy and that will mean us taking more public transport. In Austria , prices for using the rail network have been slashed and the subsidy is being paid for by the State. It will be possible to travel by train from one end of the country to another for 3 Euros.
My father prioritized rural busses and invested in social care (especially for the elderly), I think he would have applauded Martin Woolf as I do. People like me can afford to pay more for an expanded state and this Government should set its sites on moving us to an economy as efficient and fair as our Northern European neighbors. According to IMF data, Germany’s taxes averaged 45 per cent of GDP from 1991 to 2019, as against the UK’s 35 per cent. Yet, despite unification, Germany’s real GDP per head was 16 per cent higher than the UK’s in 2019.
My father was limited by what local Government could do , he could not encourage economic development through investment in technology, training, research and education, he couldn’t even stop oil exploration in the isle of Purbeck.
But big Government can and should take radical decisions about how we manage our transition to a low carbon economy and how we increase productivity. I travelled up to London last night from a weekend in Dorset in a full carriage. The person next door to me told me he would normally have travelled by car – but he had no fuel. Apparently he had considered the train a last resort.
Changing our routine feels unpleasant, but the pandemic has taught us we can adopt new practices and the new normal should mean we don’t have to return to an old normality which was driving our planet to self-incineration and leading us to the kind of strain on our health and welfare systems we have seen from combatting the Coronavirus.
If, as looks likely this week, we are to get a new economic policy for the post Brexit, post Covid world, then I hope it is one that looks to Germany and Scandinavia for inspiration, not America and Australia.