Solving the U.K. Budget Mess

One month ago, I explained that the United Kingdom was suffering economic and fiscal deterioration because of a rising burden of government spending.

And when a greater share of economic output is diverted to the government, that means slower growth (even the CBO, World Bank, and OECD agree).

A spending cap is probably necessary to fix the U.K.’s fiscal problems. And the Brits can simply look to the middle of Europe to learn from Switzerland how that will produce great results.

But that’s just the first step. Complying with a spending cap would require the politicians in Parliament to change the trajectory of various programs.

Unfortunately, British politicians are making things worse rather than better. The previous Conservative government was bad and current Labour government is delivering more of the same. Instead of controlling spending, British politicians have been raising taxes.

So how would I fix the problem?

The London-based Telegraph has a new online budget exercise that gives their readers a chance to create their own budget. It requires a subscription, so most of my readers presumably won’t have access.

It starts by showing projected fiscal balance based on the policies of Rachel Reeves, who is Chancellor of the Exchequer (basically a combination of Treasury Secretary and Director of the Office of Management and Budget).

In theory, her policies are going to produce a small surplus in 2030.

In reality, I think that is a grossly optimistic number. Her tax increases are driving successful taxpayers out of the country.

And the economy is likely to be stagnant because of her higher taxes and bigger spending burden.

But let’s set that aside and instead look at what happened when I went through the 13 choices in the Telegraph‘s exercise.

As you can see, I produced much better results.

By the way, I have the same complaints about this exercise as I’ve had for American versions (here and here), namely that I wanted options that were much more aggressive.

I would have eliminated entire government departments and dramatically slashed tax rates.

What the United Kingdom needs is a new Margaret Thatcher, someone who actually did significantly reduce the spending burden while also enacting major reductions in tax rates.

P.S. I hope today’s Republicans will learn from the failure of Britain’s post-Thatcher Conservatives. Like the United Kingdom, the U.S. budget is bloated but fixable.