Coffee House

Danny, David and tax

24 June 2012

What are we to make the split between Danny Alexander and his predecessor as deputy Chancellor, David Laws, over the size of the state? Laws says today it should be 35 per cent of economic output, which is an excellent ambition. In an interview with BBC1’s Sunday Politics today, Danny says 40 per cent. A split? When asked, Alexander said: ‘I think around 40 per cent is the right sort of range to be looking at. It’s only in the last four or five years that we’ve seen the share of the state taken up by spending rising to nearly 50 per cent, as it did in Gordon Brown’s years.” 

Well, in this case Danny is sticking to the Treasury’s forecast. By its (understated) figures, state spending is 46% of GDP now and will be 40.5% in 2015-16 – after which point the LibDems propose to stop the cuts. But two pieces of research recently proposed going further. The 2020 Tax Commission, of which I am a member, proposed keeping going at this rate and have taxes at about a third of economic output by 2020. The Centre for Policy Studies recently released a great wee study showing that countries with smaller governments grow faster and are most prosperous. Having tax/GDP ratio of 40pc is the threshold for a small government. Here’s the video:-