Huge state spending is set to trap the UK in a vicious circle of higher taxes and permanently lower growth
For the first time in years, I’m turning bearish on Britain. Our economy, trashed by Covid and the lockdown, is about to be sucked into a catastrophic doom loop, with no escape hatch. Forget about a V-shaped recovery: the future is a truncated square root, with years of stagnant growth to follow a partial rebound next year. We are leaving the EU, but are set for Eurozone-style semi-stagnation. It’s a tragedy.
Why such negativity? Savage tax increases of a kind ordinarily associated with Left-wing governments now seem almost inevitable, and I fear that one entire plank of what should have been the Johnsonian renewal agenda – supply-side, pro-growth tax relief – will never materialise.
Remember how Boris Johnson talked about raising the threshold for the higher income tax rate to £80,000 during his leadership campaign (though it was omitted from his manifesto)? Or the inspirational way in which he cited Ibn Khaldun, the true father of supply-side economics? “He observed that if you cut taxes on the olive harvest, or whatever it was in 14th century Tunisia, that actually people grew more olives, and tax yields went up,” he said in November. All of this now sounds like ancient history, pledges from a world that has disappeared forever.
I’m sure the Prime Minister would still love to cut taxes in due course, and his excellent free ports policy will allow him to do that in a minor way. But he is about to discover that there is only so much that one can do to defy the ultimate constraint that is scarcity. Social-democratic levels of spending eventually require European levels of taxation. Instead of pro-growth tax cuts, we are going to get anti-growth tax increases in a desperate, counter-productive scramble for cash."
Britain is about to be sucked into a catastrophic economic doom loop
FFS, we are already at about the Germany tax levels (without corresponding level of services)
But as the writer suggests the service economy in upcoming "free ports" will be able to service sailors without 20% VAT handicap.
