Animal Spirits, Economic Growth – No UK Will Just Rebalance

All the talk from Britain’s Chief Secretary to the Treasury, Danny Alexander, is about rebalancing and getting the country’s public finances in order. All very important, of course, but what remains utterly depressing is the Coalition’s tax position. In an interview today, Alexander confirms that the Treasury is not thinking of reducing taxes on the middle-class and high earners. He says it as unlikely that there will be any tax reductions for the next five years.

Now there is nothing wrong with trying to get to grips with Britain’s £155billion budget deficit — unlike the U.S., Britain is taking decisive action to rein in public expenditure. But retaining the 50p top rate of tax and the higher 20 per cent rate of VAT, which kicks in next January, is going to do little to inspire the animal spirits and will only hold back economic growth — yes, it is the private sector that is going to be the engine to power the U.K. out of the doldrums, if it is allowed.

Politicians just seem intent on making the mistakes that worsened and prolonged the Great Depression back in the 1930s. As Arthur Laffer has noted: “The damage caused by high taxation during the Great Depression is the real lesson we should learn. A government simply cannot tax a country into prosperity.”

And some off-setting expenditure cuts? Don’t build the two new aircraft carriers and forget a Trident replacement!