Never has the phrase “there’s no magic money tree” been more apt, as a report published today by the Centre for Policy Studies argues against further government spending.
Policy Analyst Jethro Elsden offers an alternative perspective, arguing lessons from post World War Two austerity could apply today.
From tax, to changing consumer habits and adapting the economy, the report sets out why the post-war boom was driven by greater consumer confidence and increased business investment, rather than by state intervention.
The solution offered in the report is for the government to not prop up struggling firms, and instead encourage innovation and the creation of an adaptive economy.
Essentially, this is achieved if the government removes itself from intervening and allows the private sector to blossom, argues Elsden. Instead of funding failure, the government should allow the private sector to stand on its own two feet, he explained.
“A key lesson from postwar recovery is that interventionist, high-spending policies lead to lower and slower economic growth. Rather than maintaining big government after the pandemic, what we need is a smaller state which intervenes less – and to give the private sector the resources, support and certainty it needs to power the country back to growth,” Elsden said.
He stressed that direct parallels can be spotted between the post World War Two recovery and the current economic situation.
These include not solving any economic weaknesses in the economy, such as protecting domestic firms from competition, and continuing to subsidise failing businesses.
Both actions refer to what the government during the post-war period failed to address, Elsden continued, as he said that his warning is to stop history repeating itself, where with long-term annual GDP growth was between 0.75 per cent and 1 per cent, lower than it should have been, in his view.
A spokesperson for the CPS clarified to City A.M. that the government should not increase taxes which would harm the incentive to invest and work. Instead it should look to reform taxes to improve these incentives.