As we ponder the government’s recent spending review, you have to wonder how it got so bad, so quickly. Of course the last government spent like money was going out of fashion meaning a lot of the pain we have to go through now is because of over spending. I am convinced if the government departments were private businesses responding to shareholders then spending would be a half what it is today. And don’t get me started on the NHS…. However another part of the story, rarely reported, is just how much the current tax take by HMRC has dropped by over the last few years.
One of the first things Margaret Thatcher did following a Labour government was to lower income tax only to find that revenues from tax actually grew. It is something I am a great believer in; low tax economies generate more income for the country. I think it is much more important to take tax when people spend rather than when they earn. That way people don’t go out of their way to avoid paying tax and people are encouraged to save rather than spend.
But there is another way to help weather any financial storm and that is to diversify our income streams. Currently the UK relies too heavily on services, most of which are nice to haves rather than necessities and are the first to suffer when people cut back. Germany on the other hand is a great manufacturing economy and has seen significant growth even with the likes of India and China hot on its heels.
What is obvious is that it is going to take time to recover. I strongly believe we will see another dip in the coming year but I also have no doubt our economy will recover to new heights over the next decade. It has in the past, it will in the future. What we need to do is stop complaining and focus on getting out there and generating new business. Government can help by getting out of the way and making it attractive for investors and companies to be involved in the UK. With a little Dunkirk spirit we can make this country great again.