How much would a minimal state cost?


Most libertarians would say that the core duties of government are few in number: defence and diplomacy, policing, the courts, and so on. Essentially, government is there to protect individual liberty, and not a lot else.

I don't expect we'll ever see such a state – as Bastiat noted, the state, like any living organism, tends naturally to grow – but I thought it might nonetheless be interesting to work out how much it would cost.

Using, I worked out that the annual budget for 'defence' and 'protection', the categories which more or less correspond to those 'core duties' of government mentioned above, is about £70bn. Interestingly, that's about how much VAT set at the minimum rate of 15 percent should raise. Wouldn't it be nice if that was the only tax you paid?

OK, so maybe that's not realistic. But here's a still-radical proposal with a little more relevance to the real world: first, go ahead and restrict the Westminster Parliament to those core functions, and that limited tax base.

Then replace the welfare state with the kind of compulsory savings system that they have in Singapore and Chile, and which the ASI advocated in our reports on the 'Fortune Account'. Essentially, national insurance contributions, rather than going to the government, would go into personal, privately-owned accounts, consisting of health savings, health insurance, unemployment insurance, and a retirement fund.

Then leave the provision of any other services to local government, each unit of which would be responsible for raising its own revenue. They would have to compete with one another to attract residents and businesses, so they would have an incentive to provide the best possible services for the lowest possible cost. It would be a bit like having a free market in governments.