Most UK families, business leaders and investors will spend the next month trying to ignore the ever-darkening economic clouds that are gathering in the run-up to Chancellor Rachel Reeves’ autumn Budget.
Her problems have been mounting for months. First her own Labour backbenchers rebelled over savings on benefits reforms, blowing a huge hole in her plans to save money. Next, everyone from Gordon Brown to Andy Burnham demanded she scrap the two-child benefit cap, which will push spending higher still. Then her official forecasters at the Office for Budget Responsibility (OBR) downgraded their forecasts for UK productivity, crushing hopes that faster economic growth would provide a ladder out of her fiscal black hole. And finally, she knows she needs more spare budgetary headroom than she has as insurance in case something else goes wrong next year too.
Even at this late stage, there are still steps she could take to dispel the gathering gloom, as outlined by the Centre for Small State Conservatives.
She should cut public spending on inefficient government programmes, using a new Public Sector Productivity Act.
And she should introduce simpler, lower taxes, boosting growth by allowing investment to flow wherever it will do most economic good, instead of where politicians and bureaucrats think it should.
And she should launch a ‘top five in all five’ programme of supply-side reforms so Britain ranks in the top five G20 nations for cheap and abundant supplies of all five key ingredients of economic success: real estate, energy, skilled labour, infrastructure and investment capital.
If Rachel Reeves announced any of these reforms, it would part the economic clouds to let rays of sunshine cut through the Budget gloom. But sadly she won’t, which is why big tax rises are on the way.
Nor will she be the first – or the last – chancellor to make big and expensive economic mistakes either. The only certainty is that we taxpayers always end up footing the bill for politicians’ misjudgements.
But it doesn’t have to be this way. Prevention is better (and cheaper) than cure, so how can parliament put up economic guiderails to stop chancellors getting taxpayers into trouble in future?
The answer is a Taxpayer Protection Act, where parliament writes a permanent and economically sustainable fiscal rule into law, so future Governments have no choice but to live within the country’s means.
That would mean Governments following the ‘golden rule’ of only borrowing to invest in building new infrastructure rather than to pay for day-to-day bills. And controlling red tape costs as carefully as traditional government spending for the first time, because they have the same economic costs as taxes. And cutting the huge, hidden long-term taxpayer IOUs we’re writing because of our ageing population too.
There would be built-in stabilisers to cope with recessions or emergencies like pandemics or wars. And of course, the new Act could still be changed with a future parliament’s consent if needed. But otherwise, taxpayers would be legally protected against governments saddling them with the bills for economic mistakes like overspending, or borrowing too much, or hiding the true costs of enormous long-term IOUs completely, for the first time in our country’s history.
Even better, protecting taxpayers would boost our economic growth too. The extra certainty and stability of a Taxpayer Protection Act would cut the costs and risks of investing in Britain at a single stroke. Our reputation as a safe, stable, commercially-attractive place for jobs, investment, wealth-creation and business growth would improve overnight.
A Taxpayer Protection Act wouldn’t completely prevent future governments and politicians from making any mistakes at all. But it would make sure they happened less often, and were smaller and less expensive for taxpayers to put right afterwards too.
It’s a point worth remembering as we approach Budget day this November.
This article in CapX is the latest in a fortnightly series of policy proposals from John Penrose and the Centre for Small State Conservatives
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