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Hostile to Growth

Britain: a Culture Hostile to Growth

Winston Churchill

Winston Churchill

This month Liz and I have had the fascinating experience of visiting the places where Winston Churchill – Britain’s wartime leader and its best-known statesman – grew up, lived and became famous, including Blenheim Palace, the Houses of Parliament and the Cabinet War Rooms, with his grand-daughter Celia Sandys as our guide.

It’s easy to forget the breadth of his experience of high office before he became prime minister – he had served in various governments as minister for the navy, the colonies, trade, internal affairs and finance.

What a contrast to Britain’s current premier, David Cameron, who had no ministerial experience – and not much business experience either – before taking power two years ago.

It shows in the shambolic way the country has been run since. Anthony King, professor of government at Essex University, says he “increasingly gives the impression of being an amateur doing a professional’s job.”

Apart from periodic mis-steps – the latest being a plan to cut tax benefits on donations to charity in a foolish populist ploy to punish wealthy tax avoiders — some of his policies are extraordinary. They include:

  • A big boost for foreign aid – much of it wasteful and promoting corruption – to a mindboggling £11½ billion a year by 2015, encompassing a period of savage cuts in almost all types of domestic spending, including policing and higher education;
  • Refusal to allow expansion of the hugely-important Heathrow airport, which has only two runways, or provide any alternative to address worsening congestion in the airways of Southeast England, while committing the country to a hugely-expensive high-speed rail link to cut 20 minutes on the journey time between London and Manchester;
  • Scrapping the Royal Navy’s only remaining aircraft carrier, while planning that its replacement now under construction will have no aircraft to fly from it for its first eight years in operation (and without provision for the support vessels and crew that will be essential).

The government’s finance minister, Chancellor George Osborne, who has its toughest job, also seems to be increasingly prone to mistakes. There are ominous signs that the period of office of these two young and inexperienced leaders will be seen as ending in political and economic failure.

They did come to power in the most difficult circumstances facing any new British government since the Second World War:

  • An economy plunged into recession by the global financial crisis, weighed down by the additional burden of a bloated state sector consuming half the nation’s annual output (the highest proportion in Europe). Two major drivers of economic growth and sources of both employment and tax revenues – financial services and real estate – have been devastated by the recession.
  • A soaring national debt fuelled by government over-spending. In the last year of the previous government the fiscal deficit financed by borrowing rose to more than 10 per cent of GDP – the largest-ever in peacetime, and one of the worst in Europe – and it hasn’t fallen much since (now about 8 per cent).
  • Failure of the Conservatives to gain an election victory giving them a parliamentary majority forced them into a coalition, obliging them to make major concessions to their “soft Left” partners, the Liberal Democrats.

The “Tory twins” were told there was a grave threat that, if they did not act immediately to address the state’s haemorrhaging finances, investors would flee UK government bonds (known as “gilts”). Interest rates would soar, sterling would crash again, and the economy would plunge from recession into depression.

The Bank of England (central bank) governor, Mervyn King – who privately said that whoever took power after the election would be accepting a poisoned chalice – apparently promised rock-bottom interest rates and easy money if the incoming government took tough action to stop the haemorrhaging.

So, on taking power, Osborne opted for an austerity plan of spending cuts and tax increases designed to eliminate annual fiscal deficits within five years. On completion of the plan, the average household will be £5,000 a year worse off through higher taxes, and loss of services and other benefits provided by the state.

next article – It’s even worse than the Thirties

CopyRight – OnTarget 2012 by Martin Spring

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