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Friday 18 July 2008

Cover Story

Why we can’t afford a third term

Allister Heath shows how Gordon Brown has played fast and loose with the facts to portray Britain as a dynamic economy. The truth is that the Chancellor is a tax-and-spender who has laid up huge problems for the future

More and more people are being dragged into the welfare state, with couples earning up to £58,000 a year eligible for tax credits — as long as they fill in a 12-page form and read 55 pages of notes on how to apply. A massive 69 per cent of households are now in receipt of at least one state benefit; 22 per cent of the population is on income-related benefits and 15 per cent on tax credits. Remarkably, 30 per cent of the population derive more than half their income from state support, while up to a quarter of workers are employed by the government.

Under a third Labour term, the British economy, once the most dynamic in Europe, will continue to become progressively Europeanised. So far, according to the government’s own figures, which underplay the extent of the problem, the cumulative cost of new red tape since 1998 has reached £39 billion. Taxes are on course to reach a 25-year high as a share of national income. The Organisation for Economic Co-operation and Development (OECD) expects total government spending in Britain to reach a massive 45 per cent of national income this year. The speed and scale of this transformation from market economy to social democracy can be seen from the fact that in 2000 public spending was only 37.5 per cent of national income. The most fundamental shift of the Brown years has been to move Britain to European levels of public spending and away from the lower tax models of English-speaking countries such as the US, Australia, Ireland and New Zealand.

Already, parts of the country have become largely socialised: in Wales and the north-east of England public spending makes up 59 per cent of the local economy; in Scotland it is 52 per cent. By contrast, in London and the south-east, which pay the most tax, it is only a third: these regions are being bled dry to pay for hand-outs to the rest of the country, while slowly being dragged down to the level of low-growth, low-employment Scotland. Despite Brown’s constant boasts about how he is helping enterprise and promoting flexibility for business, the UK has tumbled on all the main international competitiveness league tables; this decline will intensify over the coming years.

At the start of this year, the Prime Minister and his allies made a failed attempt to persuade Gordon Brown to accept the Foreign Office after 6 May: soon the Chancellor may come bitterly to regret his failure to get out while the going was good.

Allister Heath is economics editor of the Business.

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