Mark Littlewood writes: Sharper axes, lower taxes

Today sees the Institute of Economic Affairs publish its own version of the Comprehensive Spending Review. The research report – Sharper Axes, Lower Taxes: Big Steps to a Smaller State – calls for a radical downsizing of the public sector and sketches out the colossal tax cuts which would become possible. Accompanying opinion poll research, conducted by ComRes, shows overwhelming public support for such a strategy.
 
For all the sound and fury surrounding the coalition’s fiscal retrenchment, its proposals are actually amazingly modest. In real terms, public spending will fall by a mere 3% or so between now and the next election. For every pound the state was spending when Liberal Democrats took to their ministerial offices, it will be spending about 97p by 2015. The public sector will still account for around 40% of the overall economy. The coalition intends to continue to spend more money than it raises in tax receipts and – although the budget deficit will fall – the overall national debt will rise by several hundred billion pounds. The next generation – those who cannot vote yet and even those who have yet to be born – will end up paying the bill for our continuing largesse today.
 
The IEA calls for the coalition to go far further and to seek to reduce the public sector to around 30% of GDP by reducing government spending by an additional £215bn. In real terms, this would mean public spending reverting to the level it was at in 2001 when Tony Blair’s government sought re-election for the first time. There would be dramatic cuts in health spending (£44bn) as well as education (£15bn), pensions (£15bn) and defence (£17bn) – but there would be ample left to cater for the needs of the poor and underprivileged.
 
The corresponding tax cuts which become possible are truly spectacular. In broad terms, income tax could be cut to a flat rate of around 15% and the income tax threshold raised to £12,000. VAT could theoretically be halved to 10% (although the EU would prohibit such a move). Inheritance tax and stamp duty could be done away with altogether. If this isn’t the precise sort of tax cuts package you’d like, feel free to pick another on the same sort of scale. Averaged out, the savings amount to £7,500 per household.
 
The opinion poll research shows that such a strategy could be hugely popular amongst the electorate. 55% of the public believe the government should aim to cut spending to 35% or less. 29% broadly favour the coalition’s strategy – the public sector being in the 35%-45% of GDP range. A meagre 14% support a level of government spending at 45% or above. Young people are particularly supportive of a smaller public sector, with 68% of 18-34 year olds supporting the state being reduced to 35% or less. Remarkably, support is very consistent amongst supporters of all three main political parties.
 
Given a straight choice between the coalition’s plan and the IEA’s, a full 70% of the electorate support the latter.
 
The last decade has witnessed an explosion in the amount of money spent by the government. The results have been disappointing to say the least. Productivity in the public sector has fallen. Taxes have increased. Debt has soared.
 
For those who have tended to recoil from making savings in the public sector, the question needs to be asked when would the size of government be too great to bear? 55% of GDP? 60%? More?
 
A smaller state needn’t be accompanied by a disregard for the poor or by a mean-spirited culture. Far from it. The barbarians weren’t at the gates in 2001 and reducing spending to those sort of levels would be a dramatic step towards liberating individual men and women. If anyone can find the political courage to advocate such a strategy, they may also find it’s a popular one.

Mark Littlewood is Director General of the Institute of Economic Affairs.

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59 Comments

  • “Institute of Economic Affairs”

    What a joke.

    What does it say in the report then – I can’t actually read it without forking out £12.50, so I can’t tell how loaded the questions were that you asked. Given the bias in the article above, I have serious doubt about the impartiality of the “Institute of Economic Affairs”, but have no means of addressing the statistical methods used, which means your report mean precisely nothing.

    “The barbarians weren’t at the gates in 2001 and reducing spending to those sort of levels would be a dramatic step towards liberating individual men and women.”

    Why does a smaller state = more liberty. That’s a statement of simplistic ideology. You haven’t explained why, in your opinion, a smaller state = more liberty, which is fine – we all have our own uniformed opinions I guess, but what I really object to is the fact that you pass yourself off as some kind of research instsitute, when you’re clearly nothing more than a lobby group trying to push your own agenda. Personally, I’d rather listen to mumsnet.

  • Chris Keating 13th Jul '11 - 4:43pm

    What a joke survey.

    If you ask the public “Would you like more apple pie” in an opinion poll they answer “Yes please”…

    Of course in reality the question is “How much of the public service you receive are you willing to sacrifice for your extra apple pie?”

    If the IEA had any intellectual honesty or credibility they would have asked questions about tradeoffs, not vague fantasy scenarios.

  • Wow. That’s a terrible idea if ever I saw one. Let’s move swiftly on.

  • mike cobley 13th Jul '11 - 4:57pm

    How refreshing it is to get such a candid blast of full-strength fundamentalist, neoliberal doctrine, and straight from the horse’s mouth, too! This summary, and the longer piece, is a detailed working-out of a devious, deceitful fantasy. Between shaking my head and laughing like a drain, I found that the only necessary rebuttal was the following – the core function of market-free public services is to serve the needs and wellbeing of the general public, whereas the core function of companies working in the market is maximise profit/minimise loss. History is overflowing with examples that starkly illustrate what happens when the wellbeing of the public, especially the disadavantaged, the disabled, the sick, and the old, are handed over to the care of market mechanisms (and please, spare me the figleaf cant about mutuals and voluntary organisations). Also, the dismantling of public services, which dear old Mark seems so hot for, would be a shameless act of de-democratisation, especially with regard to the ethos of collective, public compassion. Thatcher once said there is no such thing as society – the Institute of Economic Affairs has produced a blueprint for the demolition of society. Sorry, Mark, but this one won’t fly – back to the drawing board.

  • Richard Cole 13th Jul '11 - 5:17pm

    When you ask people if they want expenditure cut and taxes cut they say yes. If ask if they want expenditure that they benefit cut they so no. When people want expenditure cut they want all that wasteful expenditure that goes on other people cut not spending on their local schools, hospitals, libraries etc. And of course pensions should be cut but not their pension because they have earned that. And so on.

    Oh and of course they that what that General said about the threat to Britain was right and so defence, no that shouldn’t be cut…..

    Think tanks don’t have to fight elections. They just have to try and get headlines.

  • Good grief.

    There are no words as to how happy Mark must be since leaving Liberal Vision, the IEA does indeed let his wildest dreams run riot.

  • Is this the same Mark Littlewood who prophicised that the Lib Dem parliamentary party would suffer massive losses because they didn’t subscribe to his bizarre views.

    I can’t seem to find that document on his(?) Liberal Vision website – but they have a habit of airbrushing embarrassing stuff out of existence.

  • Superb – I can only assume Simon McGrath posted his comment before he’d read Prateek’s brilliant rebuttal of the idea of choosing an arbitrary percentage.

    I think it should be 50.1682%. That, for me, points the way to liberty and happiness for all. What does anyone else think? What’s your percentage? (I got mine by multiplying the magic ratio by the cube of pi)

  • @jedibeeftrix
    “Institute for Market Economics, Bulgaria”

    And here was me thinking the Institute for Economic Affairs were a bunch of jokers.

  • @jedibeeftrix
    From the introduction of the ‘paper’ you linked to:
    “Economic growth has suffered from the increase of taxation and government spending which has been above optimal levels in most countries.”

    Is that what you consider scientific?

  • @Andrew Tennant:
    I’ve no interest in making the poorest suffer to help those already living in privilege.

    Then you’d best find another party. Some of our most sick and disabled citizens are being denied benefits now – on a massive scale which has already led to several suicides. In my charity where we help disabled people, I am finding people with 6 months or less to live being found “fit for work.” People undergoing Chemotherapy found “fit for work”. Last week I dealt with a case where, believe it or not, a deafblind man was found fit for work. Oh and don’t forget the ex-soliders who lost limbs or suffered mental distress in Iraq and Afghanistan also being found “fit for work.” Or the man who had a heart attack in the ATOS testing centre and died later that day – but still sent his family a “fit for work” notice on the day of his funeral. Yes, this cruelty started under Labour. But the coalition government has made it ten times worse.

    This is a massive problem which will need cleaning up. It will cost the government more money than it saves. We are routinely denying our most sick and disabled people the help they need (and which many paid for when they were able to work).

    So when you hear about more and more sick/disabled people joining pensioners who have to choose between heating and food in winter, maybe you will think again on this.

  • “55% of the public believe the government should aim to cut spending to 35% or less.”

    Statements like this remind me of Josh Lymans, “38% of people believe foreign aid is too high and 32% believe it should be cut” (or whatever the figures were).

  • I think your proposals would be wildly popular; until they where put in place. At which point you’d be lucky to find anyone to support you.

  • @ Mike Cobley

    How refreshing it is to get such a candid blast of full-strength fundamentalist, neoliberal doctrine, and straight from the horse’s mouth, too!”

    It certainly comes from some orifice belonging to a horse, but I’m not sure it’s the mouth.

    I remember, back in the 1980s, when I was studying economics at university, we used to laugh at some of the right-wing headbanger nonsense that came out of the IEA.

    We fell for it once, this neo-liberal nonsense and now they’re trying it again. I don’t think there’ll be many takers. Or at least I hope not.

  • Simon McGrath 13th Jul '11 - 8:00pm

    Interesting how few people have actually engaged the issues mark discusses.
    Prateek the problem with your position is that there is an infinite amount of good things the state could do. You could spend the whole GDP on things which Lib Dems would approve of. So how do you decide when to stop?

  • @Simon McGrath
    “Interesting how few people have actually engaged the issues mark discusses.”

    That’s because he hasn’t discussed any issues.

  • @Andrew Tennant said: “…and implementing flat taxes that most benefit the rich – no thanks; I’ve no interest in making the poorest suffer to help those already living in privilege.”

    On a flat tax (or a single rate of tax) I don’t think it is inevitable that the poorest would suffer. If, for example, we had single tax rate, say 25%, on all earnings above £10,000, someone on £20,000 per year would only be paying tax on 50% of his/her salary. Whereas someone earning £100,000 per year would be paying tax on 90% of his/her salary. It would mean that everyone pays the exact same tax rate (treating everyone equally) but, and with the provision that a great any tax exemptions are removed, the rich could actually end up paying much more, than they currently do. My point being that, at least in theory, a single tax rate could, implemented correctly, be progressive. Just a thought.

  • Richard Church 13th Jul '11 - 8:57pm

    Cut public spending more and people would be forced to spend their tax savings on insurance instead. Health insurance, social care insurance, private pensions, private security, private education.

    Fine for those whose tax cuts are big enough to pay for it. What about the rest?

  • Daniel Henry 13th Jul '11 - 9:21pm

    @ mpg
    The tax threshold is responsible for the benefits you mention in your post. I didn’t see any benefits from a flat rate tax.
    It would simply mean less tax paid by those who can afford it and more tax paid by those who can’t.

  • Ian Patterson 13th Jul '11 - 9:48pm

    the political silly season has began early with this. but littlewood pops up on newsnight and elsewhere as former senior dem spokesman

  • Simon McGrath 13th Jul '11 - 10:46pm

    @mark – i have downloaded, just not read it yet.
    we should resume the discussion when we have read it!

  • “I support this because taxing over 40% of GDP is known to substantially decrease long-term growth, i.e. the stuff that preserves for your children the standard of living you enjoy today.”

    Don’t you mean the stuff that results in ever-increasing standards of living – until you suddenly realise that the planet’s resources aren’t infinite?

    Hadn’t there used to be a tradition of concern for the environment within the Lib Dems? Has that now been superseded by “Growth is God”?

  • @Daniel Henry: your point overlooks the reality that tax avoidance is something only the rich can do, and the poor can’t. Hence the poor always pay more tax proportionately than the rich actually do. Removing loopholes, especially for richer tax payers, might have the net effect of making the richer actually pay more tax, while reducing their tax compliance costs, thereby, maybe, making it more attractive for richer tax payers to stay in GB and pay a proportionately higher amount of tax. Again, don’t hold me to any of this, its just an idea. I’ve heard some very left-liberal thinkers defend such a conception of a single rate of tax, and I found interesting, they, and I, might be wrong as you say.

  • Actually, looking at this page again. Why is this bloke not put down as a guest? Even if we was a LD once then he’s clearly not one now – this isn’t economic liberal territory, this is insane ultra-libertarian territory (except without considering competition). If he still has any connections to the party, I’d advise the powers that be to drop him like a stone.

  • Wow, people say ‘yes’ to free cash – astonishing. Try asking questions about what level of reduction in public services people would be willing to accept in return for their ‘spectacular’ tax cuts.

    You may or may not have something interesting to say in amongst the propaganda, but while you lead with such nonsensically skewed polling it’s hard to take you seriously.

    Go and spend some time reading Anthony Wells’ very good UK polling report blog, then try to use your opinion polls properly and then perhaps people will engage with your arguments. Or just ditch the ‘our polls show that everyone will love it’ line and try to explain why you think your proposals are the right thing to do.

    Sorry for the rant, but polling is a legitimate and useful method of testing opinion and every time someone skews the results to try to prove a point as you’ve done it (unfairly) diminishes the credibility of polling in many people’s eyes.

  • Paul Pettinger 14th Jul '11 - 12:10pm

    All I will say is well done Adrian Sanders.

  • Tony Dawson 14th Jul '11 - 1:27pm

    “Mark Valladares
    Posted 13th July 2011 at 10:24 pm | Permalink

    Mark hasn’t really asked us to engage with it, merely attempting to blind us with some wholly bogus statistics that demonstrate, as others have pointed out, that if you offer someone lots of money, they’ll come up with an answer you like”

    It might do for people to remember the circumstances which preceded Mr Littlewood’s cessation of employment with the Liberal Democrats. His axe is hardly the sharpest tool in the drawer.

  • “For all the sound and fury surrounding the coalition’s fiscal retrenchment, its proposals are actually amazingly modest. In real terms, public spending will fall by a mere 3% or so between now and the next election. For every pound the state was spending when Liberal Democrats took to their ministerial offices, it will be spending about 97p by 2015. ”

    are you an idiot.? the demand on public sector will have increased massively by 2015 from 2010 (pop. growth, ageing pop., rising standards of living) and spending would have to increase to keep to current standards, however it is falling by 3% and given it is impossible to cut come areas (pay wont decrease, nhs, elderly care) many regions of public spending will suffer large cuts with rising demand hardly modest. this report proposes abolishing the nhs, free education and privatising roads (because it worked so well on rail) – a social and economic catastrophe. you asked the question to get the answer you wanted – people have no clue about % of gdp and want both smaller taxes but better services. if you had said end free education and free healthcare you would have 95% + against. lastly “Government spending – even in areas such as research and development, investment and education – has little or no beneficial effect on economic growth.” is right wing rubbish – no matter how low taxation if you dont have the skills, facilities provided by government research you will never generate investment and growth. in fact no study has ever found a link between high taxes and low growth (see sweden, germany)

  • @ex-lib dem
    Exactly, not that your rational, evidence-based reasoning will have any effect on the Mail-reading fraternity.

  • Is it just me or does this piece sound like a researcher from Family Fortunes has decided that their methodology is an appropriate way to make decisions about the nations finances.

  • LondonLiberal 15th Jul '11 - 2:06pm

    it’s a shame that Mr Littlewood doesn’t have the courage of his convictions to come back and respond to the pretty mercilless critique of his daft ideas. Even Rebekkah Brooks and Rupert Murdoch agreed to answer their critics!

  • What an interesting post from Oranjepan, just chock full of assumptions. I love this bit – “If you do something you do it because it is just, fair and proper, not because you can point to indications it might be popular. Fake popularity is built on the back of empty reactionary promises, real popularity comes when people see the results of far-sighted positive policies.”

    So….empty promises give rise to fake popularity, while the results of far-sighted policies lead to real popularity. Hmm. Does that mean that the party’s current unpopularity is actually a fake unpopularity, and when we reach the end of the first Five-Year Plan the People will suddenly realise the wisdom of all those job losses and public services cuts, and a rapturous, genuine popularity will then ensue, along with songs and waving flags etc?

    Did I get that right?

  • Joseph Donnelly 17th Jul '11 - 4:02am

    Surely its a sad state of affairs for a liberal party when questioning that the size of the state should be significantly smaller than 51% of GDP (its current size) is something that is demonised with ad hominem attacks and not even worthy discussion.

    Do the critics in this comments thread want to disown Gladstone, Mill, Cobden et all. They all presided over states that were under 10% of GDP, I’m not saying that they were necessarily right to do so but it seems a remarkable jump that suddenly now talking about 51% being too big is seen as some looney right wing idea.

    If the state was 71% would saying it should be 51% be a looney right wing idea?

    Or is it just that suddenly 51% is now the EXACTLY right level the state should be at, so anyone who suggests otherwise is going to damage this utopia we live in now?

    Also another person who is not a liberal….Lord Beveridge…Sadly his report during WW2 called for an insurance based national health care, not one where the state produces healthcare…how sadly right wing of him.

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