Well, I think your inflation figure is way off. Yes the "aim" is 2% and in general, the govt. produces figures that roughly match that. In reality it is nearer 10%. Often higher. Their basket choice is highly manipulated!
Your question can be boiled down to "but who will build the roads?". The answer is that no one builds them now and we pay a fortune for them. So, who cares? The other major problem is that the corruption is through the roof! Things do not cost what we pay.
You can probably tell that I am a bit of an anarchist. That doesn't mean I want a " Purge" situation. It does mean I believe we should end all benefits, scrap the NHS, use the government only for refuse collection. Sounds draconian but it's about time we were allowed to live freely.
Small government may work buthonestly I don't trust any of it. In general people would run things fairly. "But who would enforce the rules?" We would