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Britain Shows No Sign of Shaking Addiction to Debt, Taxes and Regulations

With British Prime Minister David Cameron’s impending state visit next week, we can expect to hear a good deal about – though see nothing very much done about – Afghanistan, the NATO Summit, Libya, and Syria. But we’re also likely to get a smattering of commentary about Britain’s parlous fiscal position. If we’re lucky, the media will talk about “Tory spending cuts.” If we’re really lucky, they’ll call them “savage.”

Writ large, it’s useful to remember one thing about these spending cuts: they don’t exist. While some departments have indeed been trimmed, others – such as debt interest, healthcare spending, foreign aid, and contributions to the EU– have expanded. The net result is that state spending in Britain has not been cut – it is still going up. Most of the noise about cuts – nay, even savage cuts – simply reflects the media’s and the left’s definition of austerity, which they understand as meaning any increase that is not as large as they wish, or as a previous government had planned.

In Britain’s CityAM business newspaper, entrepreneur Alex Cheatle offers an increasingly common complaint: the Conservative led coalition government talks a good game on promoting growth, but it does too little. And that is the sad truth. Or almost the sad truth.  The full sad truth is that what few actions the government has taken have almost uniformly made matters worse. When the government came into power in 2010, its priority was to restore order to Britain’s finances. Given the course of events in Greece, Italy, and France, among others, that was a sensible point of emphasis. Unfortunately, it took the IMF-approved green-eyeshade bean-counter approach – an approach highly congenial to the Liberal Democrats, for entirely different reasons.  Thus, they decided that taxes needed to go up, while regulations could not go down. In a nation where the World Economic Forum finds that most problematic factors for business include high tax rates, an inefficient government, tax regulations, and a restrictive labor market, and where Heritage’s Index of Economic Freedom charts similar problems, that was a bad decision.

In February, the Institute for Fiscal Studies announced the unsurprising results: cuts to non-investment spending are by 2016-17 supposed to do almost 50 percent of the work of bringing Britain’s budget into balance, but only 6 percent of those cuts have actually happened. Cuts to benefits are supposed to contribute just shy of 15 percent of the total effort: only 12 percent of those cuts have happened. The only area where the government has showed a Stakhanovite commitment to carrying through on fiscal consolidation is, predictably, in the realm of taxation, which was supposed to contribute 20 percent of the consolidation, 73 percent of which has already happened. The net result is this: overall, Britain has barely slowed the growth in spending, and though some reforms in the realms of education and welfare are promising, there has been no bonfire of controls on the supply side. Instead, in the teeth of a fragile economy, Britain has persisted in doing the one thing that governments are really good at: raising taxes. In the circumstances, it is not surprising the British economy is doing poorly.

In recent days, Chancellor of the Exchequer George Osborne made headlines by stating bluntly that “The British Government has run out of money.” The U.K. offers an object lesson in the fact that, if you make enough bad choices, you soon get to a point where, as Osborne recognizes, there are no attractive choices left. With almost all the tough cuts left to make, the political road for the coalition looks as rocky as the economic path of a nation that shows no sign of shaking its addiction to debt, taxes, and regulation. So when Cameron comes calling, anyone who talks about savage Tory cuts should be met with a sigh, and a muttered “if only.”