Legalising drugs would help reduce the deficit

Legalising drugs reduce public spending, boost tax receipts, and lower addiction

By Stuart Rodger. This is a summarised version of a longer article that can be found here

Of all the Government’s victories so far, what is perhaps most chilling of all is the scale of their propaganda victory. Britain, we are endlessly told, is on the verge of a debt crisis, and that this can only be remedied with a programme of deep, rapid public spending cuts.

The reality is that, as a proportion of GDP, the UK’s debt has been higher for 200 of the past 250 years. In 1945 Britain’s debt stood at 250% of GDP – and we built the NHS. In 2011 Britain’s debt stands at 60% of GDP – and we’re cutting the NHS. 

But still, while there is plenty of room for fiscal manoeuvre, it is true that we are paying a very high rate of interest on our debt – £44bn annually to be exact – and we can all agree that this is far from ideal.

 Austerity isn’t working: David Cameron is in fact exacerbating the very problems he claims he wants to solve. The government claim they want to eradicate the deficit within this five-year parliament, and ‘get our economy moving again’.

 The coalition has begun this financial year with increased borrowing: For April 2010, borrowing stood at £7.3bn; for April 2011, borrowing stood at £10bn.  The Chinese bond-rating agency, Dagong (which is regarded as a more impartial guide to credit-worthiness) has down-graded the UK’s credit-rating from AA- to A+.

Part of a better way out of this financial hole may lie in an unexpected place: the drugs trade and its legalisation.  Every debate about drugs policy must begin by acknowledging one hard, solid fact: the market for drugs is ineradicable. 45% of the British population admit they have taken an illicit substance.

By criminalizing these substances, what you do is transfer a huge, lucrative market into the black-market, where they become drastically more dangerous. And, because drug dealers cannot appeal to an army of accountants, lawyers and police officers to protect their property rights – they do it themselves, with guns, knives, and machetes.

The answer is to legalise: to take drugs away from armed criminal gangs, and hand them over to doctors, pharmacists, and off-licenses. For an idea of what a legal, regulated model would look like check out Transform’s in-depth report ‘After the War on Drugs: a Blueprint for Regulation’. Far from being a commercial free-for-all, a legal model would have in place solid consumer protections, production-controls, and marketing-laws. The administrative costs would be negligible.

Furthermore, the facts demonstrate that legalisation precipitates a dramatic fall in hard drug use. Since 1971 when the Misuse of Drugs Act was passed in Britain, use of heroin has increased by 1000%. When personal possession of drugs was decriminalised in Portugal in 2001, use of heroin dropped by 50%.  It isn’t legalisation that acts as a ‘slippery slope’ towards the gutter – it’s prohibition.

 And here’s where the economics comes in. The first and most obvious saving to the Treasury would be in the tax revenue generated by cannabis sales: The Independent Drug Monitoring Unit estimates that combining the resin and herbal ‘skunk’ markets, based on a tax of £2 per gram, could generate around 1 billion of tax revenue annually. Transform Drugs Policy Foundation report that 4.036 billion goes on the criminal justice system every year (at least 50% of Britain’s prison population are in for drug offences) – a sum that would collapse under legalisation.

The illicit drugs trade acts as a giant pyramid-scheme: the alchemy of prohibition, as it is known, multiplies profits by 3000%, and each user is then incentivised to find another user to sell to in order to fund their habit (few customers are as reliable as drug addicts). It constitutes a giant 4.8 billion pound market: an un-taxed vacuum in to which money is sucked (These figures are for England and Wales only, and ignore the Drug Capital of Europe: Scotland).

 There would be a historical precedent for this. It is no coincidence that Alcohol Prohibition was ended in America in 1933, just four years after the Great Crash of 1929. US tax revenues had collapsed by 60% over three years, and they desperately needed revenues to fund a Keynesian stimulus.  

Of course, many people have understandable concerns that, under legalisation, we will see a rise in addiction. What every advocate of legalisation needs to explain is how exactly it helps the bruised, broken human beings who we all see stumbling and shaking their way down the streets of Britain’s cities. Many parents who have, tragically, seen their children descend in a spiral of addiction are aghast at calls to legalise: their anxieties must be answered with a convincing response.

 That is the challenge for those who want to see a sane drugs policy which is based around harm reduction and can be a real boost to the economy.

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