YESTERDAY I launched a mini-series looking at the challenges the UK economy faces. Today we start to look at some of the solutions.
I outlined our view of the principled challenges but perhaps the greatest of all is the most fundamental. Britain, as a core member of the Western Alliance, was always considered to be a cornerstone of economic freedom and liberty. We used to champion personal freedom, low tax and a pragmatic, light approach to regulation.
Today however, that record is in tatters as the UK is taxed more highly than at any point in the last sixty years while, perhaps even more critically, our government directs, controls, marshals and influences at almost every level.
With state spending accounting for over 54 per cent of the economy and over 60 per cent in Northern Ireland, Wales, Scotland and the North East (and much more if we include the not so soft regulatory state), our freedoms have been eroded to an extent that would have unfathomable just a generation ago. Worse, there seems not a cigarette paper between the approaches of the two main political parties both of whom continually make the case for regulation, tax and control.
The first step towards a cure is to understand the magnitude of the challenge and how far our personal economic freedom has slipped. The fall has been immense. It is solutions that are important, however, and countries in a far worse position than ours have succeeded. There is a route map. Sadly, our politicians are all rowing in the opposite direction and towards Big State, control and retribution.
Simply put, action by central government to stave-off increasingly regular black swan events be it, the dot com bust, the global financial crisis or now coronavirus are becoming ever more extreme. Each and every time a crisis emerges the response is for central government to grab more control from the private sphere for the state resulting in personal and business freedom being increasingly diminished.
It’s a one-way street and if we in Britain and more widely the West do not waken up and arrest this drift, which is now becoming a flood, we will find ourselves as vassals of the state which is the inverse of what a free society should be.
But let’s be optimistic. Over the next week I shall examine economic solutions required if we are to regain our lost freedoms. First up, the lockdown has seen the greatest transfer from the private to public sphere ever in peacetime. The economy tanked 9.9 per cent in 2020 despite a staggering 32 per cent rise in public spending. Almost all the pain was felt by the private sector. If we are to have any semblance of a free society going forward we must reverse this trend.
Sadly, this Government is making a virtue out of increasing spending further often to dubious effect but if we are to find any sustainable solution it must begin with rebuilding the private sector. To achieve this government should seek bottom-up solutions. Rather than clumsily imposing its will, it should trust the people. The best place to start is with significant tax cuts.
By cutting taxes a myriad of micro-organic decisions are made that feed effectively through to the economy, creating employment, raising growth and ultimately the total tax take. Contrast that with government central direction. The results are almost always woeful as politicians play at being fund managers or try and second-guess how best to allocate resource from the isolated and remote centre. In a nutshell private individuals and business are far more effective than at growing the cake than governments, thus tax cuts must be at the heart of rebuilding the economy bottom up.
For a generation now, taxes have risen steadily across the board. Stamp duty of 0 or 1 per cent became 0, 5, 10 or 12 per cent; top rate tax moved from 40 to 45 per cent, VAT from 17.5 per cent to 20 per cent – and many new taxes were raised, be they air travel, insurance premiums or even apprenticeship levies. Always in one direction, of course, it doesn’t matter if it is Conservative or Labour in power. Britain’s competitive position is eroded and with it prosperity and growth.
The British debate has become narrow and short term. Chancellor Sunak is but the latest in a long line to plug a gap with yet more tax rises and complications for the tax code which at 17,000 pages is over 5x longer than the entire series of Harry Potter combined. Governments talk about simplifying and reducing the tax code but frankly do the opposite and this Chancellor is no exception.
Instead, a government committed to growing the cake and trusting the people would use the lockdown disaster as an opportunity to reset the tax code – downwards. I have proposed a programme of tax simplification and reduction stimulating the individual to the tune of £48bn. That may sound a lot but it is only 2.2 per cent GDP, it’s peanuts in comparison to the £350bn spent on the economic disaster of lockdown.
Our opponents claim it can’t be done but this is hogwash as £48bn is merely 12 weeks spending, at the current rate, on coronavirus and our estimates would be self-funding in 5 years driven by rising growth rates.
Our plan (link here) sweeps away a whole raft of taxes but the real trick is the stimulus to the private sector, which is far more potent and effective than increased public spending, raises employment and wages and promotes private sector growth. Within five years we estimate our proposals will be self-funding and in the longer term will result in stronger more sustainable public services.
For £48bn we can take one in six of taxpayers out of paying any income tax at all and ensure the remaining taxpayers are at least £1500 a year better off. I would radically simplify and cut stamp duty which is a counter-productive and anti-growth tax, we could take all small business making less than £100k of profit out of the corporation tax code all together. We could abolish Inheritance tax for estates worth less than £2m – 98 per cent of them – and we could abolish a raft of small taxes from air passenger duty (I think we need a holiday after the lockdown) the absurd apprenticeship levy and abolish VAT on domestic fuel.
Some may quibble over the detail but for me the critical point is to change the debate. Britain has been failing for a decade. We may have outperformed France, Italy and the Eurozone. Big deal. But compared with our Anglo-Saxon cousins in Australia, Canada and the US our growth has been pathetic.
Britain has huge strategic advantage be it the world’s leading global city, global leadership in finance, elite education, the English language, business services and the creative arts – not to mention an outstanding research and development assets amongst others. Failure is inexcusable and frankly is a direct result of very poor political choices.
We have got used to mediocrity and a fourth-rate political debate as the all the media cajoling is for more tax, more retribution and blame. Instead we should ignore these siren voices who have done so much damage to the fabric of our country at so many levels and begin to re-trust the people.
Let’s start by growing the productive private sector bottom up. Low taxes work. Ask the Irish, or look to Singapore or Hong Kong or 1980’s Britain and America. They are self-funding and they are liberating.
Next up – real levelling-up and why Johnson’s attempt could come back to haunt him.
Photo of the industrial skyline of Hull, by mrallen via Adobe Stock