I imagine libertarians in the United Kingdom are equally unhappy. After several years of statist policy when the Conservative Party was in charge, they are now suffering more statism under the Labour Party.
You can see the impact of bad policy in this chart from the U.K.’s Office for Budget Responsibility. I’ve highlighted in red the worst news, which is that government spending is now consuming 44.9 percent of GDP, a dramatic increase compared to 34.6 percent of GDP at the turn of the century.
This reckless increase in spending is accompanied by a big increase in the tax burden (by 5 percent-10 percent of GDP depending on the starting point).
It’s also been accompanied by a big increase in government debt.
Which, as reported by Szu Ping Chan for the U.K.-based Telegraph, has led the OBR (akin to the U.S. Congressional Budget Office) to warn that some sort of fiscal consolidation in needed.
Here are some excerpts.
Andy Burnham faces £120bn of tax rises or deep spending cuts to stop Britain’s debt from spiralling out of control, the Government’s tax-and-spending watchdog has warned. The Office for Budget Responsibility (OBR) said Britain’s public finances were on an “unsustainable” path. …Official figures show Britain’s debt pile is close to surpassing £3tn, equivalent to 95pc of gross domestic product (GDP). The watchdog warned that an ageing population, coupled with increased spending on the NHS and the state pension, risked pushing the debt ratio to 300pc of GDP within 50 years. …stabilising debt at 95pc of GDP would require…tax rises or spending cuts equating to 3.8pc of GDP…or £120bn in today’s money.
The good news is that the OBR understands that consolidation via tax increases would be very risky.
OBR officials warned Mr Burnham that continually raising taxes would create “ever-increasing economic distortions and costs”. It said options for sustained tax increases were limited, adding that a war on wealth could backfire while a prolonged stealth raid on earnings risks pushing an extra two million people out of work. …In a blow to advocates of higher capital gains taxes, the OBR said this was not certain to raise huge amounts of revenue. “Increasing taxes on capital over the long term could negatively impact investment and because capital is generally much more internationally mobile than labour, the yield generated from higher capital taxes is more uncertain,” it said.
The right approach, of course, is fiscal consolidation via spending restraint.
Here’s a chart I prepared using OBR data. It shows that the big fiscal problem in the United Kingdom is that government spending spiked during the pandemic and has not returned to the pre-pandemic trend line (in red).
Even coming halfway back to the spending trend line (which easily could be achieved with a meaningful spending cap) would eliminate the current budget deficit.
