Author Archives: Lucy Parsons

The Independent View: Road to recovery

At a Reform event this week, Vince Cable gave his response to our new report on infrastructure. On the key points there is much we agree on. Infrastructure is critical for economic growth, and with a £175 billion government budget deficit, greater private finance is urgently needed to fund infrastructure investments. Government has a role to play in infrastructure, but bureaucratic, interventionist policies will be a barrier to productivity.

The report finds that the UK is in the infrastructure slow lane, ranked 34th in the world on the quality of its infrastructure in a recent competitiveness study. Road to recovery suggests that politicians of all parties have been blinded by the “green heat of technology”, moving towards a more interventionist approach in infrastructure markets.

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The Independent View: It is our politicians – not the public – who need convincing of the need for spending cuts

Yesterday’s Budget was a stalling tactic. The Chancellor put off having to make the tough decisions needed to regain control of the public finances and gave no plan to move the UK back to black. David Cameron in his response promised that his Party would make these tough choices, but he failed to say how. There is a real opportunity for the Liberal Democrats, if Vince Cable can continue to lead the way as the only politician brave enough to say that the answer lies in tackling the big areas of public spending.

In Reform’s Pre-Budget analysis last …

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The Independent View: The hole we are in and how to get out of it

Vince Cable has stood out as an advocate of extremely sound economic policy while his counterparts have floundered. He predicted the housing collapse, he warned that the UK’s debt-binge was unsustainable and he was the first to take a decisive stance when Northern Rock collapsed. But the Liberal Democrats’ support for a stimulus of £30 billion – to include tax cuts for the low-paid and public spending increases – in next week’s Pre-Budget Report is entirely the wrong step.

As Reform’s new report shows, the academic evidence is that rather than boosting the economy, a stimulus could in fact cause long term damage to confidence by unbalancing the public finances further.

Secondly, it would not work. A public spending stimulus would take too long to take effect and would crowd out private spending, while tax cuts are more likely to be saved than spent. Higher tax credits would actually increase the marginal cost of work for people on low incomes.

Thirdly, we simply cannot afford it. The true level of debt is at least 60 per cent of GDP once the major “hidden” liabilities (e.g. Northern Rock, PFI) are taken into account. We have the 4th highest structural deficit in the OECD, and when the Government’s large long-term spending commitments on pensions and education are factored in, the UK already faces tax increases of £100bn – that means £4,000 for every British family.

Vince Cable also proposed tax increases on richer people to fund this stimulus. Art Laffer, the senior American economist, has said recently that this would actually weaken the public finances further, because rich people can reduce their ability to pay taxes whereas poorer people cannot.

However, the Liberal Democrats have also embarked on a programme of research on public sector productivity which seems to be better than the other two Parties. Its results should be very timely.

This is the right step. To keep the recession and unemployment to a minimum, the Government’s short term objective should be the same as the long term path to economic growth – to increase productivity. This should be the theme of the Pre-Budget Report and of Budget 2009.

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