Theodore Parker described democracy as 'a government of all the people, by all the people, for all the people'. Winston Churchill was perhaps more realistic when he called it 'the worst system of government except for all the rest'. Whichever definition is preferred (and they are not necessarily contradictory), most of us who have experienced democracy would not want to exchange it for any other system of government. But what kind of economic regime is best suited to real democracy? That question is too often ignored by economists.

Democracy assumes that ordinary people are wise enough to elect a government. If so, surely they are more than capable of deciding how best to spend their own money. And yet in the western European democracies people regularly vote for governments that take between 40 and 50 per cent of their incomes in taxation. In so doing they are saying that fallible politicians know better than they do themselves how to provide the health, education and other services that they need. The Adam Smith Institute has calculated that for the UK Tax Freedom Day falls on 30 May.

Even those on very low incomes are taxed to the hilt. For example workers on the minimum wage of £4.85 an hour start paying income tax after 19 hours work a week. By the time they have worked 27 hours, they are paying 33p in every extra pound in income tax and national insurance. Gordon Brown, with the agreement of the electorate, taxes the poor into greater poverty! How did we arrive at this crazy system?

In short, because we expect the government to do far too much for us. And as that attitude developed during the twentieth century our democracy gradually changed into what Ralph Harris has rightly called a 'demockery'. To reverse this trend will require radical, new thinking on the part of people and politicians and a very large reduction in taxation and government expenditure. If the government were to stick to its basic roles of defence, maintaining law and order and providing a temporary safety net for those who had fallen on hard times, taxation could be reduced to between 10 and 15 per cent of GDP and Tax Freedom Day would be in February. Many taxes could be abolished and others slashed. The UK would become the world's most dynamic economy as well as the truest democracy.