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Big government Britain isn't working

Allister Heath
NEXT year, government spending in Britain will reach 54.1 per cent of gross domestic product (GDP), up from 36.6 per cent in 2000. This devastating statistic, buried one the OECD&rsquo;s website, has been largely overlooked; yet it is one of the most important facts that everybody should know about today&rsquo;s Britain. It demonstrates that almost an extra fifth of our economy (17.5 per cent, to be exact) has come under state control on Labour&rsquo;s watch since the start of the century. <br /><br />It is, from Gordon Brown&rsquo;s perspective, a major accomplishment, yet one which for some reason the Labour left has failed to give him proper credit for. He has reshaped the British economy in the mould of traditionally socialist states like France (55.8 per cent of GDP), Sweden (57.1 per cent) and Denmark (56.6 per cent). In fact, of the 28 OECD member states, only five have larger governments sectors than the UK &ndash; and then only by a small margin. Far from boasting some kind of small-government, Thatcherite economy (a model which the UK was much closer to in 1995, and which Australia, South Korea and Switzerland are closest to today) we are now among the most government-controlled societies in the developed world. Even under President Barack Obama, America&rsquo;s public spending will be just 42.8 per cent of GDP next year. <br /><br />This uncontrolled growth of government in Britain has turned out to be a disaster, for several reasons. The first is that the public sector&rsquo;s productivity growth is close to zero, which means that unless the nationalisation of the UK economy is drastically reversed, economic growth (and incomes and living standards) will remain stuck at 1-2 per cent a year over the next decade, rather than the 2-3 per cent we got used to over the past few decades. <br /><br />The second is that big-government states are not attractive to successful individuals and global investors: over time, capital &ndash; both intellectual and financial &ndash; will flow out of the UK or will not come here. It is a tragedy that entertainers and artists are considering moving to France to pay less tax; less surprisingly, hedge fund managers are moving to Switzerland. <br /><br />Last but not least, public spending has grown at a much faster rate than tax receipts &ndash; even though Britain is heavily over-taxed and punitive levies are being imposed on the better off, government revenues next year will be just 40.2 per cent of GDP, very close to the average of the past 20 years. The result will be a massive gap between income and expenditure worth 14 per cent of GDP, a crippling budget deficit, an exploding national debt and a looming crisis.<br /><br />It remains to be seen how serious the Tories will be when it comes to tackling this disastrous state of affairs. Some of the recent signs are promising; it may be that, against the odds, David Cameron will turn out to be a revolutionary reformer after all. Yesterday&rsquo;s policy on hiring private employment firms to help find jobs for Britain&rsquo;s army of adults on out of work benefits is a great idea. But there is still plenty of work for Cameron and his colleagues to do this week at their annual party conference. They must convince an electorate that has turned its back on Labour &ndash; and that is sceptical of all politicians &ndash; that the Tories have a workable plan to rescue Britain. The ball is in their court. <br />allister.heath@cityam.com<br />