Take a look at this graph from the office of national statistics:
Firstly, it shows how volatile the construction sector is in the UK. Secondly it shows that the UK services industry is booming while production has never really recovered from the crash.
The production side of the economy is directly effected by regulation and taxes, where as the services industry is propped up by government spending. The more the government spends, the more it has to tax. High taxes stifle growth in the production side of the economy and this reduces output. If our output is reduced the country suffers from a trade deficit and a budget deficit. The most effective way of reducing both is to produce more than you buy.
EU red tape is also having a massive impact on our productive sector and churns out new legislation every week.
Obama, Cameron and Milliband are all the same
I have been reading updates of David Cameron’s visit to China over the past few days and I can’t help thinking that the whole trip should never have happened in the first place.
Firstly, what is the point in the prime minister visiting a country that we can’t sign a free trade deal with (Our ties to the EU mean we are no longer able to control critical and important things such as this). Instead he has to ask them to hurry up their planned free trade deal with the EU instead which has caused unrest among EU officials here and here.
Secondly, on his trip he wanted to prove that the UK is still part of the global race. To take part in the global race you have to structure your economy to ensure that it doesn’t have a trade deficit, and that it is competitive on tax rates to attract people and businesses over to the UK. Yet he is another prime minister on a long list of backbone-less politicians. This is what the telegraph had to say about the current government:
If anyone is to make the case for difficult supply side reform, it ought to be Mr Cameron, with responsibility delegated to individual departments, rather than dictated by the Treasury as part of some Soviet-style five-year plan. In any case, beyond lip service, we’ve so far seen precious little of it. The Coalition has dabbled in education, planning, welfare and tax reform, but none of it has been transformational, while on energy policy, the Government seems to have steamed off in the other direction entirely.
What about red tape?
Any exploration of supply-side reform starts with the well-tested notion that the best thing government can do for business and the economy is simply to stay out of the way. Michael Fallon, minister for business and enterprise, has been heroically leading the unglamorous charge against red tape, but new obligations keep mounting, most recently with the start of pension auto enrolment, adding a further 3pc to labour costs.
Sure enough, public spending is slowly – very slowly – being brought back into line with revenues, but too much of the burden of this adjustment has been put on to rising taxes and not enough on a smaller state. Forging ahead with HS2 in the belief this will expand the economy’s potential flies in the face of the basic principle, backed by much economic research, that money ploughed back into the economy through tax cuts is likely to be far more helpful to growth than tax-funded government investment. Examples of public policy that promote self-reliance, as opposed to further discouraging it, remain all too thin on the ground.
The UK’s attitude for growth after world war two was “export or die” and “We must sell the things we like to buy the things we need”. Now it is “cut little bits here and there until growth resumes, then spend more”.
Nothing is solved by government spending, full stop.