Britain is choosing to be poor
We struggle to imagine the poverty to which we are condemning our descendants
Daniel Hannan is Director-General of the Institute of Economic Affairs
Do we not understand how rapidly we are sliding into poverty? Or do we not care?
We calmly discuss which taxes John Healey is going to raise without questioning the premise. We beg the question, talking of more hikes as “inevitable”, as if we did not already have the highest taxes since the 1940s.
Let me spell out the problem using figures from the Centre for Economics and Business Research.
On current trends, our standard of living will fall behind Lithuania in five years’ time and behind the Czech Republic in six.
The deadweight of taxation and debt have pushed us steadily down the league tables, from 12th place at the beginning of the century to 24th today. If nothing changes, we will fall to 46th by 2050 – a middle-income nation. Along the way, we’ll be overtaken by Romania, Georgia, Turkey and Moldova. Yes, Moldova.
This is not some statistical trickery, some prestidigitation with numbers. We can observe the immiseration around us. We see it in the closed pubs, the boarded-up shops, the profusion of charity and low-budget outlets. We hear it in the resigned tone of young graduates sending out unanswered job applications. We feel it in the judder of unfilled potholes under our tyres. We learn it from friends who are leaving for higher salaries and lower taxes in the UAE or Australia or even Portugal.
None of this is inevitable. It is the direct result of choices we have made – and, depressingly, that we continue to make.
People respond to incentives. If we put up their taxes, so that they keep a smaller portion of what they earn, they will be less productive. Likewise, if we hand them money unrelated to what they produce, they will be less productive. There may be other arguments for redistributive taxation; but there is no world in which it does not damage growth.
Similarly, if we have regulations that inhibit risk-taking, privilege some sectors over others and prevent companies from acting in the most efficient way, those firms become less productive. Again, some regulations might be necessary – those that prevent pollution, for example – but let’s not pretend that they boost the economy.
These are not radical, left-field ideas. They are basic economic orthodoxy, demonstrable in theory and proven again and again in practice. Yet, at some point in the early twenty-first century, we (in common with most of Western Europe) gave up on them.
We say we want growth, but our revealed preferences tell a different story. We want growth only insofar as it does not mean cutting benefits, or lowering the minimum wage, or building on the Green Belt, or charging people to use the NHS, or allowing skilled immigration, or raising the pension age, or embracing imports. In other words, we don’t want growth. Cushioned by generations of accumulated wealth, we struggle to imagine the dirt poverty to which we are condemning our descendants.
This year, we will spend £303bn on benefits. It is hard to convey quite how vast that sum is. It is not only bigger than last year’s defence budget; not only bigger than the NHS budget; but bigger than both combined.
How entitled we have become. Ours was the country of Adam Smith and David Ricardo and Margaret Thatcher, the country that introduced the world to free contract, secure property and open markets. Those ideas made us the richest nation in the world. Yet our generation cares nothing for them. We choose to disregard our fathers and disinherit our children. We choose mediocrity. We choose penury. Shame on us.