Tuesday, November 07, 2006

Public sector productivity

Philip Stephens has an article in today's FT setting out the divide between Labour and the Conservatives on tax.He says 15-20 years ago the Labour opposition wanted to increase public spending. The Conservative riposte was that income tax would go through the roof, and that the money stolen from hard-working families would be squandered on the unions. Since Labour was elected in 1997, taxes and public spending have increased sharply. As a share of national income, taxes are now back to the levels of the early 80s and yet the Conservatives remain under pressure. The Labour spin is that the Conservatives want to cut taxes and slash vital public spending and they would hand cash back to their friends in the City by eg cutting stamp duty on equities. "Conservatives used to cost every Labour proposal down to the last £5m or so and declare triumphantly that it all added up to an extra 4 or 5p on the basic rate of tax. Now Labour takes every Tory suggestion of lower inheritance tax, stamp duty or such and translates it into precise job losses among teachers and nurses...For all the New Labour talk of prudence, since 2001 public spending has been growing at a faster rate than any time since the 1970s."
Why can't we estimate how much growth and productivity has been lost by this concentration on the public rather than the private sector of the economy?


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