Our latest report – Ten Economic Priorities: an agenda for an incoming government – is released today. In it, City analyist and ASI fellow Nigel Hawkins argues that the next government should draw up a 'Medium Term Financial Strategy' to convince investors that it is serious about bringing the public finances under control and being able to pay off the country's mountain of debt.
The need for such a measure is clear. The government aims to borrow £175 billion this year, and to continue borrowing, until its total debt reaches £1,370 billion in 2013/14 – some 76 percent of the nation's income. And of course, that ignores the £37 billion capital injection into the banks, and the £585 billion of bank liabilities now underwritten by taxpayers. Moreover, the IMF and other leading economists say the government's growth forecasts are far too optimistic. The bottom line is that unless serious action is taken, Britain could go broke.
Hawkins points out that public spending has soared, with the government expecting it to reach £671 billion this year. Extra welfare payments because of the recession could easily drive that figure higher. Accordingly, the report argues for radical, but politically realistic, across-the-board cuts in public expenditure – amounting to real terms reductions of 3 percent per annum over the medium term.
The report also makes clear that taxes have risen substantially on Gordon Brown's watch, and need to be reduced and simplified in order to generate economic growth. Across-the-board tax cuts will not be feasible until expenditure cuts begin to stabilize the public finances. However, swift cuts in corporate taxes, and reductions in other business burdens, are essential in order to boost the UK's competitiveness. In particular, the next government should reduce corporate taxes in order to promote investment, and reduce and simplify income tax and NI to promote employment.
The other seven priorities for the next government are as follows:
- Closely control the money supply and commit to sound money.
- Privatize functions such as water utilities, broadcasting, the postal service, and transport.
- Reduce public sector pension liabilities by closing over-generous schemes to new members.
- Restore honesty into PFI deals, which are currently not counted on the government's balance sheet.
- Radically improve the management of public procurement to reduce cost and time over-runs.
- Overhaul bank supervision, and stress-test the large banks to forestall a future crisis.
- Progressively reduce government guarantees to the banks and sell its bank shareholdings.
The full report – which is very much worth reading – is available for free download here.