The missing wealth: Despite economic growth, public finances are still a mess

A rising tide, so the old saying goes, raises all ships. Thus, the current spurt in British economic growth – somewhat overdue, but the fastest in the industrial West – should also be buoying up that most majestic of liners, the UK’s public finances. Employment, after all is growing at a record pace, and unemployment falling at a very respectable clip as well. So you might expect that, with more people in work and spending their hard-earned wages, tax revenues would be soaring, and government borrowing, at last, subsiding.

It is not turning out quite like that. Borrowing is higher than it was this time last year, and the Chancellor is likely to miss his borrowing targets, especially when he has made the reduction in the deficit such a centrepiece of Coalition policy.

Why so? Some technical factors are at work, but the obvious point is that wages are simply not rising as quickly as expected. That has meant that all those new jobs were possible in the first place, as it has also been cheaper than expected for employers to hire. It does also mean that the public finances need to be restructured to take account of some new realities. As the IPPR says in its latest report: “None of the main parties are being honest with voters about the need to raise taxes and deepen cuts after the 2015 general election.”

“Raise” might not be as good as “widen” though. The UK’s tax base is notoriously narrow with huge swathes of the economy exempt from taxation – from food to residential property, and the rest riddled with tax-dodging transnationals and the super-rich. Our taxes need to be wider rather than higher, more rational and consistent. From the Treasury that brought us the pasty tax we should not expect much movement in that direction when the Chancellor comes to present his autumn statement on 3 December.