As a summer of flag-waving at the Olympics and the Queen’s Jubilee draws to a close, Britons are being reminded of cold economic realities as data reveal a slump in tax receipts in July — traditionally the second-biggest month for such receipts.
The figures have contributed to a sense that Britain’s Conservative-Liberal Democrat coalition now stands a crossroads as it attempts to initiate an economic recovery. Should it replace a program of sweeping cuts with a more Keynesian one based on investment, or stay the course and perhaps even go further down the road of austerity?
After proceeds from corporation tax sank by 20 percent in July, the treasury blamed a cut in North Sea oil and gas production, following a fire. But analysts, as well as partisans in both coalition parties, also seized on the fact that the government was last month forced to borrow £600 million ($952 million), compared with a surplus of £2.8 billion at the same time last year.
“There is a lot of pessimism around in general about the future, so businesses are simply not investing and taxes are not coming in,” says Eamonn Butler, director of the Adam Smith Institute, a libertarian think tank.
He highlighted a survey of company bosses released Wednesday by Britain’s Institute of Directors, which found that many were “battening down the hatches” because they felt that the government was doing “too little, too slowly” to engineer an economic recovery.
“In this situation, you basically need to do something which is shocking,” says Mr. Butler. “You need to take the shackles off business, have a serious deregulation campaign, and stage a serious assault on the tax system to simplify it and reduce the higher rates of taxes on individuals and companies.
“You can overdo austerity, but the reality is that we haven’t really had much austerity. The government is spending pretty much what was being spent five years ago, and in terms of cuts really all we have seen is a reduction in the rate of growth of government expenditure.”
The latest figures put more pressure on the premiership of David Cameron, who now is being haunted by clips of him warning when he was in opposition: “You cannot borrow you way out of debt.”
Amid growing signs of a political backlash at the economic slump, just 1 in 6 voters (16 percent) said in a poll Tuesday for the ITV news channel that they trusted Mr. Cameron’s chancellor of the exchequer, George Osborne.
“What George Osborne set out two years ago has been proved to have been be inadequate for the huge economic turmoil that we are facing,” says Andrew Harrop, the general secretary of theFabian Society, a left-leaning think tank affiliated with the opposition Labour Party.
“We have had low growth over the last two years, the deficit is reducing only very slowly, and debt is still increasing. What is required in the short terms is tax cuts for low-income groups to get demand growing in the economy, and also a major incentive program that would be a combination of private-sector borrowing and leveraging in private finance, such as setting up a national investment bank.
“Businesses are holding their breaths due in part to eurozone uncertainty, but also due to British domestic policy and our own market,” he continues. “If we had measures to boost demand in the short terms and had a better structure in terms of encouraging and facilitating investment opportunities on the ground, then many would feel much more comfortable.”