The 'Independent' manifesto for national recovery: Keep the government out of things

Share
Related Topics
THE Independent's programme for recovery correctly identifies some of the measures that could boost Britain out of recession and into recovery. It also includes a few policies which would do the opposite. By my reckoning it scores 6 1/2 out of 10.

The first proposal, to cut interest rates to 5 per cent, is risky. It would encourage foreigners to desert the pound. Our exchange rate would fall and foreign goods would cost more, fuelling inflation. On the other hand, exports would be cheaper in foreign markets and British businesses impaled on the interest-rate hook would be released. On balance, therefore, a dramatic move such as this is worth the risk. Inflation is less of a threat than depression.

No points for the suggestion of pushing ahead with major road and rail projects. Government has no money of its own. If it spends on public works, it takes cash from private citizens to finance them - or, by borrowing, pre- empts the cash that private businesses could have raised. Either way, it starves the private sector of capital which could be creating real jobs more efficiently than the state can create bogus jobs.

The idea of reviving the housing market is good, but not by tax concessions, which selectively channel funds into housing by making it more attractive than other investments. Why not reform conveyancing instead, thus speeding up and cheapening house purchases and sales? This would cost money to no one except lawyers.

The destruction of small businesses by withdrawal of bank credit is rightly fingered as a major contributor to recession. Full marks for proposals to curb it by a firm lead from the Bank of England. But do not forget that the majority of bankruptcies are triggered by the Government itself, with either the Inland Revenue or Customs and Excise pushing for liquidation. As preferred creditors, they have an interest in doing this. That position should cease.

Of course, the Bank of England should be independent. More than that, it should be able to behave like a real bank, with high- street branches and merchant banking services.

That the Treasury should seek a balanced budget over the course of an economic cycle makes obvious sense; indeed, it is virtually government policy already. Certainly the Treasury's Economic Forecasting Unit should be independent: it should make its projections and economic model available to private business on a commercial basis.

No marks at all for a Department of the Economy. We have been there before. The Department of Economic Affairs under George Brown was a laughing stock even before it produced its laughable National Plan. Centralised planning is not the way, as Eastern Europe has shown. The spontaneous outcome of the plans made by thousands of individuals and businesses doing it for themselves will achieve a better result than blinkered bureaucrats can put together.

It is remarkable that the Independent should propose linking our currency once more to those of our European partners. Wasn't that part of the trouble? It is all very well saying, 'when the economy has regained its strength' - if it does, we won't need fixed exchange rates.

The commitment to free trade is fine rhetoric, and of course we should support it. But we have no control over the ability of the French to torpedo the Gatt talks. They have overpriced food throughout Europe and pauperised the Third World to support their inefficient farmers. There is little reason to suppose British 'leadership' can change their minds. Half a point for sentiment; no points for practicality.

The overall score of 6 1/2 is creditable, but it overlooks one key element in any recovery. We desperately need more private investment, for with private investment come economic growth and expansion. We can boost this only by increasing the returns on capital, which means lowering the marginal taxes on investment income. Government has to cut capital gains tax, and probably upper-rate income tax and corporation tax as well. But these highly necessary tax cuts would have to be paid for by corresponding cuts in spending. Over to you, Mr Lamont . . .

The author is president of the Adam Smith Institute.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Financial Control Manager - Regulatory Reporting

£400 - £550 per day: Orgtel: Financial Control Manager - Regulatory Reporting ...

Lead Application Developer

£80000 - £90000 per annum + competitive: Progressive Recruitment: I am current...

Senior Networks Architect

£65000 per annum + 15% Pension, Health, Travel & Bonus: Progressive Recruitmen...

SAP BW/BO Consultant

£55000 - £65000 per annum + Benefits: Progressive Recruitment: SAP BW/BO CONSU...

Day In a Page

Read Next
 

How silly of me to assume it was Israeli bombs causing all the damage in Gaza

Mark Steel
 

Careful, Mr Cameron. Don't flirt with us on tax

Chris Blackhurst
Dress the Gaza situation up all you like, but the truth hurts

Robert Fisk on Gaza conflict

Dress the situation up all you like, but the truth hurts
Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

In grandfather's footsteps

5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

Martha Stewart has flying robot

The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

Do women cyclists need 'pootling lanes'?

Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

The dining car makes a comeback

Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

Gallery rage

How are institutions tackling the discomfort of overcrowding this summer?
Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

Eye on the prize

Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

Women's rugby

Tamara Taylor adds fuel to the ire in quest to land World Cup
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices