Currently, the public sector is swelling far beyond its means. The UK is forecast to suffer a budget deficit of £170 billion later this year. This equates to every man, woman and child being in nearly £3,000 of debt. Every year, our government pays £200 billion to public sector employees and this is not sustainable. The problem with this is that the increasing deficit needs to be funded somehow.
There are several ways that this can be done. One way would be to increase taxes; however an increase in tax rates reduces incentives and is therefore likely to have the adverse effect of reducing tax revenues. Alternatively, ‘quantative easing’ (glorified printing money) could be used to pay off debt. But this is highly inflationary, as resources are no less scarce, so it would reduce the value of our currency, thus making the UK less attractive for investors.
Surely the best way to deal with the deficit is to reduce government spending. Reducing state funded employment would be a good place to start. Making public sector employees redundant would not totally reduce the burden, as they would then become an added burden to the welfare system through social security. Instead, it would be more effective to incentivise them to join the private sector, become entrepreneurial, set up small businesses, and employ people. This could be carried out through a number of measures. For instance, tax holidays for start-up businesses.
You could also increase firms’ willingness to take on new employees by abolishing national insurance. National insurance is a disincentive for businesses to employ people. It would be far more sensible to remove this tax in its entirety, encouraging businesses to employ more people who will in turn pay income tax themselves. This is likely to generate more government revenue than national insurance did to begin with.