How public spending is damaging the UK

The British public has a long tradition of appreciating privacy and respecting individuality. But this tradition is being destroyed steadily by New Labour, says Brian Durrant in the Fleet Street Letter. It's in the Government's interest to make the majority of voters dependent on the state - and this has already been achieved.

Many years ago, before jokes about national stereotypes were a thought crime, one popular anecdote said that in heaven the chefs were French, the legislators were Swiss, the carmakers German, the lovers Italian, and the English were the police.

In hell, however, the Germans are the police, the English are the chefs, the French make the laws, the Italians make the cars and the lovers are Swiss!

This joke was made in an era when Dixon of Dock Green was seen as the typical English policeman, Fanny Craddock was Britain's response to haute cuisine, the Mercedes was a highly regarded car, and the Italians manufactured rust buckets.

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A lot has changed since then. But while our cuisine and car making have improved, our policing and legislators haven't.

It would be wrong to regard all national traits as trivial and transient, however. And there is a vital British trait, so much a part of our lives that we barely notice it. This is the "privateness' of British life.

In the main, the British want a quiet life, to be left alone to get on with our own affairs in a civil and polite manner without being disturbed. We are, for instance, a nation of hobby enthusiasts - members of golf, tennis, investment and bridge clubs. There's the Women's Institute, Probus and Rotary Clubs. There's gardening, D-I-Y, sailing, fishing, brass bands, amateur dramatics and caravanning.

Indeed, the Greek authorities, when they arrested and tried five British tourists in 2001, could not believe that plane spotting was an innocent hobby!

Nearly 13% of household expenditure now goes on "recreation and culture" today. And when such pastimes are communal, the British prefer them not to be official. We cherish the liberty to do what we like in our spare time, to say and think what we like in our own home, and to choose our amusements - instead of having them chosen for us from above.

We are contemptuous of petty officialdom, bureaucrats and jobsworths. Such characters have been mocked from Shakespeare to 'On the Buses'. The national desire is for a quiet life our free born right to mind our own business. It is rooted in history. And our heritage is very different from that across the Channel.

We have in Britain what Thomas Kremer, in his book The Missing Heart of Europe, describes as an "eccentric heritage". Power emanates from the grass roots and authority is vested in the individual. What makes Britain eccentric compared to the Continent is how we got where we are today.

Our parliamentary democracy developed organically. The British have fashioned a rich, flexible and highly successful language. A pragmatic approach to life and philosophy has given us common law and a suspicion of idealism, as well as anti-authoritarian spirit, an irreverent humour, and an unwritten constitution. We rely on individual initiative and admire those who take individual responsibility.

But today this rich heritage is being dismantled brick by brick. Parliament is becoming a rubber stamp for an increasingly powerful executive. Common law is giving ground to the European law. Our police are becoming servants of the state rather than the people, and we now have political correctness backed by sanctions.

In fact, you risk a "knock at the door" from the police if you say something out of place. You will recall the chilling episode late last year when a retired couple were questioned by police for 80 minutes because - in the words of a council spokesman - they had "displayed potentially homophobic attitudes".

Just where are we heading? If government policy is pulling us away from our "eccentric" heritage, it follows that we are moving in a 'concentric' direction. This is anathema to the British way. Witness the very different history of France.

French heritage moved from absolutist rule to an uneasy democracy through bloody revolution; the language is jealously guarded by an academic body; its philosophy is steeped in idealism; it draws heavily on formal, written procedures inherent in Roman Law; its people defer, albeit with resentment, to the authority of the state and a reliance on state-supported enterprises plus a bureaucracy that governs manifold regulations.

And now, we fear, Britain is sleepwalking into just this kind of concentric state. In fact, we're running towards it with our eyes screwed shut. It's time we woke up, before our ancient liberties are eroded and our freedom to work and invest as we choose vanishes entirely.

In Edwardian England, it was said, an individual's only contact with the state was when he saw a policeman on foot patrol or a postman delivering mail. Now there is no escape. Your privacy is infringed by CCTV cameras forty per cent of all CCTV cameras on the planet, in fact - and it will be further undermined by ID cards, compulsory or not. Your participation in voluntary organisations, meanwhile, is at the mercy of diktats from the Health and Safety Executive. It takes five months to change the signatures on the local allotment club accounts to conform to the latest money-laundering directive.

There is method in this madness, of course. People who cherish their privacy have a healthy suspicion of authority and naturally oppose change. New Labour calls them reactionaries. They get in the way of "progress". They are independent. They are conservative with a small 'c'.

But the government would rather we were all dependent on the state - not independent of it. And here's why.

New Labour has executed an exercise of gerrymandering so vast you don't see it. It's the classic elephant in the room that no one mentions. Create a situation where the majority of the electorate benefit from the welfare state and New Labour becomes the natural party of government. Thus the state now directly employs 15% of the electorate, while a further 11% are either unemployed or in that endless limbo known as incapacity benefit.

Now add the 18% of the population who are benefit- dependent pensioners, and that's 44% of the electorate either in the pay of or directly reliant on the state for their income. New Labour can't lose; of the 200 most welfare dependent constituencies in Britain, just seven are represented by Conservatives. The main opposition party in this country managed to muster only 198 seats altogether in 2005.

The arithmetic is so daunting the Conservatives dare not even mention tax cuts. Over the last nine years the electorate have been indoctrinated by the relentless mantra that public spending is good (New Labour wrongly call it 'investment') while tax cuts mean public spending cuts.

Say it often enough, and people end up believing it. Public opinion has also been the target of endless government presentational stunts, official amnesia and sometimes outright lying. And all of this is benevolently termed "spin" as if it were nothing more sinister than a ride on a merry-go-round.

The Austrian economist Friedrich A. Hayek warned what this kind of planned economy and authoritarian government meant for individual liberty in his 1944 book, The Road to Serfdom. It inspired many of Mrs Thatcher's reforms and deregulations of the early '80s.

But now David Cameron heads a Conservative opposition that has grown tired of losing elections and so started mimicking the Government's tax and spend agenda. Victory for New Labour is complete; it has perfected the recipe for staying in power. Unfortunately this is also a recipe for economic disaster.

In the mid-1970s the British economy was a basket case. Inflation topped 25%, unemployment rose to its highest level since the thirties' Depression. Taxation was set at penal rates of 98% on unearned income, and industrial relations reeled out of control. The condition of Britain became so bad that the Hudson Institute reckoned by the end of the century Britain would be the poorest country in Europe after Albania. The International Monetary Fund had to bail us out like some tinpot dictatorship.

Two Oxford economists at the time, Bacon and Eltis, provided a persuasive explanation for Britain's economic malaise. During the 1960s and '70s, they said, each phase of economic expansion was accompanied by very strong growth in public sector employment. But during the ensuing downswing, the bulk of the lay-offs came in the private sector.

It followed that over time an increasing proportion of the population worked in tax-financed jobs, supported by a diminishing number of wealth-producing investors and employees. Profits were squeezed not only by higher taxes (needed to support the burgeoning public sector) but also by higher labour costs. The public sector competed for skilled workers and drove wage inflation higher, while the British economy went down the pan.

This drain is affecting private sector profitability once again. In Glasgow, for instance, several companies now complain that they can't attract young graduates. Too many are lured into cushy numbers in the public sector instead, like the £36,000 salary paid to advise the devolved government on train timetables.

What the Fleet Street Letter finds so alarming is that there is not one political party prepared to tackle this problem head on as Mrs Thatcher's Conservatives did in 1979. A debate about cutting public spending is off limits. At the same time, the insidious creep of bureaucracy and petty officialdom is crippling Britain's ability to face the challenges of tomorrow.

Globalisation, the emergence of competitive Asian economies, and the preponderance of American power make it vital that we return to our "eccentric" heritage. But instead we are creeping towards a protected 'concentric' state on the French model. As we have reported many times recently, such a model cannot withstand the forces of the 21st Century.

The last time the UK allowed the expansion of public employment to spiral out of control, Britain was dubbed the "sick man of Europe". Its relative decline from the mid-1960s to the end of the '70s was mirrored by the pound's own slow-motion decline. On the foreign exchange markets, sterling fell from over DM11 to just DM4. And while Germany powered ahead, our manufacturing industry was ravaged by inflation.

Fast forward to the present. Without doubt the golden era of 1992 to 2004 is behind us now. We are entering a phase of mediocre economic performance, which could soon get much worse. The pound along with British employment, investment and prestige could once again take the strain. But your private wealth will prove easier to defend than your freeborn liberties.

If you think that you may wish to buy overseas assets or property in the next 10 years, bring that decision forward to today. Beware of funding such acquisitions with a foreign currency mortgage. The burden of debt will become more onerous if the pound takes a dive.

And be sure to make provision for your own financial security. Invest in those very global trends now threatening our economy trends like the movement of wealth into Asia, the risk of an oil shock due to further conflict in the Middle East, and the runaway bull market in natural resource prices.

By Brian Durrant for The Daily Reckoning.

Brian has contributed to MoneyWeek with his expertise in investment strategy, for example how to quadruple your dividend income and how to navigate through the stock market in the 2008 financial crisis. He’s also touched on personal finance such as the housing market and the UK economy.