The ‘peace dividend’ ends just at the wrong time

With the Governor of the Bank of England predicting a recession, Russia’s invasion of Ukraine smashing the ‘peace dividend’ and the prime minister indulging in economic Cake-ism, does the government have a plan to grow the economy? Frank McKenna suggests tax -cutting may be the way to go.

Frank McKenna

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The collapse of the Berlin Wall, President Gorbachev, and the apparent irreversible break-up and modernisation of the old Soviet Union in the early nineties, resulted in NATO countries, including the UK, feeling comfortable in slowly but surely cutting its spending on defence.

Despite Vladimir Putin’s aggressive encroachment in Eastern Europe, the ‘peace dividend’ continued to be used throughout the new century  – until now.

Russia’s invasion of Ukraine has woken the NATO allies up – and all of a sudden, commitments to increase defence spending has become fashionable once again.

The problem is the loss of the ‘peace dividend’ could not have come at a worse time for Britain. Still recovering from the shockwaves of Brexit and the pandemic, the major conflict in Europe is a blow that is set to prove a hugely costly one according to the Governor of the Bank of England.

He is predicting that the UK economy will shrink further, longer, and faster than its European counterparts – and confirms that he expects the country to suffer a recession.

Given the cost-of-living crisis, inflation, and interest rate hikes, that is not a surprising message to hear. But the silence from our leaders as to what we are going to do about it is worrying.

Given that the Chancellor has said he is a tax-cutter, the idea that he can go on with his prime ministers ‘spend, spend, spend’ approach is for the birds. But Boris Johnson has promised more money for the NHS, more cash for law and order. And now, more money for defence. His Cake-ism is eating his government- and gobbling up any ambition Rishi Sunak garnered of cutting taxes dramatically before the next General Election.

The Treasury is demanding more tax increases, not cuts, to deal with the record borrowings the government has signed up to.

Is there another way? Some would argue that you can’t tax your way out of recession. Instead, to get the economy moving again, some would argue for tax cuts now. Certainly, as Downtown in Business has advocated for some time, a reversal of the recent National Insurance hike, a postponement of the planned Corporation Tax rise, and a review of VAT, would offer the private sector some much-needed breathing space to invest – and return some confidence to individuals and consumers.

The Chancellor is hinting that no major announcements will be made now until his budget in November. I’m not sure the country can wait that long.

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