The only path to growth is to cut public expenditure and allow for tax cuts, says Terry Smith, founder of FundSmith.
Smith, who is also chief executive of City firm Tullett Prebon, made the remarks after prime minister David Cameron backed anti-austerity measures proposed by newly-elected French president Francois Hollande.
Smith says research by Tullett Prebon’s global head of research Tim Morgan revealed government spending is 50% higher in real terms than it was ten years ago. In this context, the 1.5% cut in expenditure in 2011-12 “explodes the myth that the UK economy is struggling under the impact of government spending cuts”.
“What is it that the government wasn’t supplying ten years ago that we now cannot live without? The answer of course is nothing,” says Smith.
Smith argues that bond markets have “had enough of governments who continually run unsustainable deficits” and additional deficit spending funded by increased borrowing would not produce the desired result even if it were possible.
The issue is as much about deficits as it is about efficiency of spending, explains Smith, making the case for tax cuts in that consumers and the private sector are more economical when it comes to spending the money they earn.