One of the phrases which do little to help public discussion of economic and social policy is “the tax burden”. Often when I come across it I am reminded of a master at my grammar school who used to delight in annoying his pupils by informing us that we were “the taxpayer’s burden”.
Now, some taxes are no doubt wasted, and people have a right to approve or disapprove of the projects to which their taxes are put. But taxation is necessary for a civilised society and, as the population ages and the demands on the public purse grow, taxes are increasing as a proportion of the national income.
There are complaints in the rightwing press that the British “tax burden” has reached the highest level as a proportion of GDP since the second world war. Yet it is well below that of most European countries, which are generally acknowledged to enjoy higher standards of living and public infrastructure than we do. (“You get what you pay for.”)
As this execrable government falls apart and Rishi Sunak comes under vicious attack from his rightwingers, the latter lose no opportunity to call for tax cuts: recently they seized upon a “better than expected” month for government borrowing, glibly brushing aside a deeply pessimistic warning from the Institute for Fiscal Studies (IFS). In the words of Paul Johnson, director of the IFS: “The price of our high level of indebtedness, failure to stimulate growth, and high borrowing costs is likely to be a protracted period of high taxes and tight spending.”
Now, both major parties want to stimulate economic growth, which, among other things, would ease budgetary pressures. The need for more physical investment is repeated ad nauseam. But it is well established that business investment requires a benign environment of public sector infrastructure, not least good transport links.
Enter, stage right, an imaginative project to link up the nation called HS2. Sorry – exit stage right HS2.
Most national leaders like to go down in history with a national project. Margaret Thatcher, like the French president François Mitterrand, became keen on a Channel tunnel – although in her case Chancellor Lawson prevented the commitment of large chunks of public money to the project.
But the tunnel went ahead, and HS1 connected it, eventually, with St Pancras. (The nation owes a lot to Sir Alastair Morton, who as chief executive of Eurotunnel ensured that the private sector coughed up the money that the British government would not.)
But Sunak? He prefers to go down in history as the prime minister who cancelled a great infrastructure project and made a laughing stock of the country, which hardly impressed the kind of overseas investors he wishes to attract.
Few would doubt that the Channel tunnel, HS1, and London’s Victoria line and Elizabeth line were worth doing, and make a contribution to the nation’s productivity. Notwithstanding the canard that it was just about cutting down the time taken to travel between London and Birmingham, as originally conceived HS2 was intended to link up much of the nation.
True, costs escalated; they usually do. The problem with most coverage of such projects is that there is a huge emphasis on costs and much less on benefits. When the Victoria line was contemplated in the 1950s, economists began to employ what they called cost-benefit analysis, which was by definition not just concerned with costs.
Which brings me – inevitably – to Brexit. Entry to what became the EU, and eventually led to the single market, brought us enormous benefits at comparatively little cost. The costs of leaving are manifest to most, and mounting all the time. One important example from the investment front is that, according to Anand Menon, director of the thinktank UK in a Changing Europe, since we left the EU and lost membership of the European Investment Bank, comparable investment has been running at only a third of previous levels under the substitute lending institutions set up by Brexit Britain, and a mere eighth in the case of infrastructure projects.
There are defeatists who say the EU “will never have us back”. But the German finance minister, Christian Lindner, recently stated: “If you want to intensify your trading relationship with the EU, call us!” He told the BBC that Britain had “a standing invitation” for talks to reduce trade barriers.
The benefits of Brexit? You must be joking. But one aspect of the economic costs, in addition to the extreme inconvenience imposed on our everyday life by Brexit, brings us back to the rightwing Tory Brexiters and their call for tax cuts. Their Brexit, via the loss of anything between 4% and 6% of GDP, has severely reduced the flow of the government’s tax revenues.
