THE distinguished economist Professor Patrick Minford sent out a sharp warning to the Government this weekend: The UK is about to drown in oceans of public debt unless growth is restored by tax cuts and deregulation.
In a report for the Centre for Brexit Policy, What Should Be Done in the Autumn Statement, he argues that Rishi Sunak and his Chancellor Jeremy Hunt must change course and cut business and personal taxes in the Autumn Statement later this month. He says an £85billion tax cut now – which would only put levels back to where they were before Mr Sunak became prime minister just over a year ago – would avert the threat of a debt mountain crushing living standards over the next few years.
Professor Minford estimates that the debt-to-GDP ratio, currently around 90 per cent, would be put on a downward path towards 50 per cent over the next decade if Treasury orthodoxy were junked and the Government committed itself to a bold growth agenda; and that a general programme of corporate and income tax cuts could stimulate UK growth by 2 per cent per annum over the next decade.
This growth spurt would be further boosted by speeding up the repeal of EU rules and regulations hanging over from Britain’s past membership of the trading bloc.
The CBP report is scathing about the Treasury and Bank of England ‘panic’ which derailed the short-lived attempt of the then prime minister, Liz Truss, to restore economic growth by cutting taxes and maintaining help for households knocked off balance by the surge in energy bills.
‘It is only in the UK Treasury and the Bank of England that we see official panic in the rectification of these Covid errors – and, in particular, of the excessive stimulus from both monetary and fiscal policy that caused the UK’s high inflation – by the current hairshirt policies of fiscal and monetary overkill.’
Professor Minford, who was an adviser to Margaret Thatcher, says furthermore that it was the jettisoning of Ms Truss’s growth agenda which ‘has precipitated the zero growth prospects we now face’. This, as Ewen Stewart wrote at the time on TCW, has turned into the disaster he predicted.
What Minford is now specifically predicting is that ‘the debt ratio will spiral out of control in the long term as (tax) revenue flattens off in the face of rising public spending needs’.
He says: ‘It is plainly better to fund a short-term fall off in revenue with borrowing and so maintain the growth prospect that will deliver long-term solvency.’
In addition, his paper calls for scrapping short-term fiscal rules in favour of long-term solvency targets so that fiscal and monetary policy can work in tandem, and taking steps to enable Number 10 to overcome the ‘veto power’ of the Office for Budget Responsibility (OBR) and provide more effective economic leadership.
This call for a change of course is backed by David Jones, a former Cabinet minister and the Chairman of the Centre for Brexit Policy: ‘Professor Minford makes a compelling argument that UK economic policy needs to be put back on track. One of its stated objectives is to get the debt to GDP ratio on a downward path, but, as this report shows, the combination of a stringent monetary and fiscal squeeze will have the opposite effect to that which the Government intends. It will drive up debt because it will stifle growth and resultant tax revenues. Living standards will likely remain depressed.’
David Jones still believes there is time to put things right. Others may not be so sanguine.
You can find the full report here.