Andrew Griffith: How the Government can put enterprise at the heart of the recovery

19 Sep

The author is a former Chief Business Advisor to Boris Johnson, former Chief Operating Officer of Sky plc and founder Chairman of the Campaign for Economic Growth. Follow the Campaign @C4EG_UK.

Economic statistics each week now reveal the state of the Covid-impacted economy like charred stumps emerging from clearing smoke.

This week it was the turn of the employment data, which showed 700,000 jobs have been lost since February, and unemployment will get worse before it gets better despite the Chancellor’s excellent interventions.

The Government is rightly shifting gears from an immediate crisis response to fostering a post-pandemic recovery. There is a vibrant debate about how to do this but it is widely recognised that private sector businesses have to be at its heart.

That’s one reason why I have founded a new group – the Campaign for Economic Growth – to utilise the expertise of those who have started and run businesses to promote ideas for growth. It is the challenge of our time if we are to deliver employment and prosperity for current and future generations.

With a Budget and a Comprehensive Spending Review as well as COP26 and EXPO2021 on the horizon, the Government is presented with the perfect platform to support those growing sectors where the UK already has competitive advantage. With the right policies, we can create excellent new jobs in all parts of the country, unleash billions in private investment, and grow the export revenues that are vital to maintain our standard of living and pay for the quality public services we demand.

The good news is that Covid-19 spared or even accelerated many of the sectors in which objectively the UK already has a world-leading position: artificial intelligence, quantum computing, the life sciences, FinTech, space, sustainable aviation and clean energy. No need here to “build back better” as these were already thriving, and each represents an outsize opportunity to create multiple billions of revenue and thousands of new high quality jobs.

Hydrogen is one good example. The UK has best-in-class academic institutions and pioneering businesses producing cutting edge hydrogen technology. The world’s first hydrogen ‘giga-factory’ will open in Sheffield next year, the world’s first tests of hydrogen in the gas grid are taking place in Cumbria, and the world’s first hydrogen double-decker buses are made in Northern Ireland. The UK really does have the ability to lead the global hydrogen economy. And unlike either oil or rare-earth-rich electric batteries, hydrogen can be produced entirely domestically, without the geo-political challenges of relying on supplies from the Middle East or China.

My own constituency of Arundel and South Downs looks out over the Rampion Wind Farm off the Sussex coast. This area alone has the potential for a four-fold expansion that could be used to generate clean, green hydrogen and provide the same boost to the British economy that North Sea oil gave in the early 1980’s.

The global hydrogen economy is set to be worth $2.5 trillion by 2050, create 30 million jobs, and meet a quarter of the world’s energy demand, and the UK should aspire to a big slice of this. This is precisely the sort of opportunity the Campaign for Economic Growth wants to see the UK seize. The Government has recognised the potential, recently establishing a Hydrogen Advisory Council, but it has many more levers to pull – not least as a major player in the purchase of the next generation of buses, trains, lorries and ships.

As in many other aspects of policy delivery, we must not allow the tendency of Whitehall departments to operate in Nineteenth Century silos to result in a merely linear response to exponential opportunities for growth.

Whilst some of our public services have been found sadly wanting, by contrast businesses have demonstrated their resilience during the pandemic. After the psychological ‘wobble’ of consumers panic buying, private sector food supply chains have been remarkable for quietly and capably getting on with their important job of feeding the nation. Many other businesses have re-purposed or reinvented their operating models and got back to work – again without fuss or headlines. Whilst the state and voluntary sectors have a vital role to play in society, we forget at our peril it is only businesses that create jobs, investment and tax revenues at scale.

The Covid-19 pandemic has had a devastating effect on families and economies alike. The road to recovery will be hard, but it also presents us with the exciting opportunity to use this as an inflexion point and to shape the economy of the future. The right decisions now will ensure the UK emerges from this challenge stronger and better equipped for the next one.,

Johnny Leavesley: The Chancellor must find the courage to cut taxes and make it easier to hire

9 Sep

Johnny Leavesley is a businessman and Chairman of the Midlands Industrial Council.

Robert Lowe, a now obscure Nineteenth Century Chancellor of the Exchequer,said of his role that he was “intrusted with a certain amount misery which it is his duty to distribute as fairly as he can.”

There is a mighty judgement coming, most likely beginning this autumn: when the recession we know we are in is confirmed by another quarter’s figures; when the unemployment we know will rise is confirmed by the end of furloughing; and perhaps when Rishi Sunak delivers his first budget and begins the reckoning for gargantuan emergency Covid-19 spending.

Whatever proponents of Modern Monetary Theory (MMT) may believe (that the amount of a country’s debt is ultimately immaterial because it has the sovereignty to print more money), debt does have to be repaid eventually, and interest on it has to be paid throughout. (How ironic that those on the Left who espouse MMT as the solution for high welfare spending have so often denigrated the nation state as a sovereign unit).

With our national debt now at over £2 trillion for the first time, and its interest costs at over 100 per cent of GDP, calls are understandably growing for tax rises and spending cuts. These are calls for the return of ‘sound money’ and, logically, for a balanced budget of government expenditure. On the face of it this is Conservative prudence, but would likely be a return to austerity and a lost opportunity.

I am a trading merchant. I manufacture widgets, buy and sell metal, farm land and livestock, develop properties, build houses, and think about cash flow and risk every day. Less frequently I hire and dismiss employees, make investment decisions, and ponder ownership structures. Owning a conglomerate of business interests gives me, I feel, a better sense for the economy than many a statistician relying on dry data. I also talk widely to businesses across the Midlands, which is and has always been the engine room of the UK economy.

This is not scientific, but my sense is that those in the City are still playing the roulette wheels of financial investment happily enough, those who make things are very busy fulfilling pent up demand released by the easing of lockdown, and those in the service sector are at best treading water but more likely are struggling to survive.

Our economy, alas, is now largely service based. Since it is the private sector which will be doing the heavy lifting of creating the taxable wealth that will pay for everything government does – and predominately small and medium-sized (SME) businesses in the service sector – tax rises at this fragile time will be very counterproductive.

If the Chancellor delivers a conventional budget of tax rises and spending cuts sizeable enough to begin to make our national debt affordable, this will constrict growth, possibly even cripple it. This is not a question of selectively raising some taxes to grasp a larger tax take of a declining GDP in the hope that our weak economy can stand it – but whether more taxes will actually reduce tax revenue by dampening activity, and further damage our international investment competitiveness.

Should he be bold enough to substantially reduce taxes, prioritising easing the costs of employing people (cut national insurance) and attracting business investment (cut Corporation Tax, abolish Capital Gains Tax, and expand hugely Enterprise Investment Schemes), this would certainly stimulate economic growth and (quicker than you might think) tangentially increase government tax receipts.

I realise that this may seem to be the call of a fat cat cooing for more cream but it is in my best interests if everyone who earns money benefits from the rising tide of an expanding economy. That is best achieved if working men and women are allowed to keep more of what they earn and have more choice in how to spend it. That is best achieved by tax cuts deep enough to make a difference.

Most urgently, business needs it to be more affordable and easier to employ people. Collectively SMEs employ more people than larger companies and will need flexibility to be able to recruit. This is not determined by regulation so much as by the costs of national insurance. In a recession investors need greater incentives to take on risk.

The unspoken truth is that economic growth in the West has been lamentable for the past 20 years and politicians do not know how to improve productivity. A dawn of new technologies is coming but will not impact widely enough, quickly enough, to meaningfully help level up an unequal society.

The answer is to be brave, cut taxes on those who create the national wealth, and watch the harvest grow.

Ryan Bourne: A message for Johnson and Sunak on tax rises. Not now. And not these.

2 Sep

Ryan Bourne holds the R Evan Scharf Chair in Public Understanding of Economics at the Cato Institute. 

How’s this for a false dichotomy? Last Saturday, Prospect asked: “Post-Covid, are taxes hikes essential to fund the future? Or should we abandon “deficit fetishism” and spend our way to prosperity?” [i.e. through borrowing]. I shouldn’t need to tell ConservativeHome readers that “spend to grow” and “spend to grow”—the only difference being how to finance it—are not an exhaustive set of fiscal policy options post-pandemic.

But that tweet, sadly, reflects conventional wisdom. You should take the pre-Budget briefing in the Sunday papers about Treasury desires for £20-30 billion in tax hikes through capital gains tax, corporation tax, fuel duty, an online sales tax and restrictions on pensions tax relief with a pinch of salt. Before every recent budget such stories have emerged, perhaps due to kite-flying or overexcited journalistic coverage of illustrative exercises in how one could raise revenues. One suspects the briefings may even be a political ploy—raising fears in the Tory base before Number Ten saves the day.

Yet there’s undoubtedly an unnerving regularity to them. Alongside a steady drumbeat from “One Nation” Tories and such organisations as the Resolution Foundation, the idea that large tax hikes will be desirable and necessary is taking hold, with Covid-19 apparently making this agenda more urgent.

We are told, as the kitchen sink of argumentation is thrown, that the pandemic itself proves the false economy of a “hollowed out” state after a decade of austerity. Or that the “levelling up” and the “inevitable” higher spending we will now want on health, welfare benefits, and higher public sector pay means tax hikes are needed. Or that the crisis necessitates urgent repair to the public finances, and that there’s simply nowhere left to cut spending.

None of these arguments, however, stand the test of reason. Countries that have dealt with the Coronavirus better include those (South Korea, Taiwan, Australia) with much lower tax-to-GDP ratios than the UK and much lower health spending too. Many with higher tax-to-GDP ratios (France, Belgium, Italy) have seen similarly shocking death tolls to us.

At best, any failure to deliver resources where needed reflects bad state priorities, not an impoverished public realm. Indeed, the story of a hollowed-out state at a time of the highest tax burden since the early 1980s, coupled with this international evidence, suggests ascribing blame to austerity for poor performance is both ahistorical and parochial.

The wisdom or otherwise of  the “levelling up” agenda, and how best to pay for it, is largely unrelated to the pandemic too. Actually, to the extent that Covid-19 affects the desirability of infrastructure and public service spending in the regions, it throws substantial doubt on the benefits of projects such as HS2 and other city and town revival plans.

Who knows what lasting impact the crisis will have on remote working, the location of activity, and favoured transport modes? One Nationers arguing that the virus proves the need to level up would have us believe that the pandemic’s effects are significant enough for a tax revolution, but insignificant enough to alter the desirability of any of their proposed spending. One might almost suggest motivated reasoning here.

In macroeconomic terms, the case for significant tax rises now is weaker still. The point of bridging support through furlough was to shelter businesses and workers from this unexpected shock. To pass the bill to the private sector now as it struggles back to life would strangle the recovery. And for what? Borrowing costs are low, and we have no idea yet whether and how much this crisis will leave a permanent budget hole once emergency spending stops and private sector activity revives. In fact, even borrowing to date has not been as high as initially feared.

Of course, the extra debt to deal with the crisis has to be paid somehow, eventually. But, as I argued here before, unusual shocks such as pandemics and wars primarily result in step-level debt-to-GDP increases rather than ongoing budget holes, because you stop spending on the immediate threat afterwards.

The implication is that modest consolidation over decades is optimal to account for the extra incurred debt, rather than adopting large tax increases to compensate over a Parliament. Economists call it “tax smoothing”—debt provides a safety valve to allow us to only modestly change spending or taxation over long periods to maintain incentives. Of course, if the Government thinks that, for political reasons, it must expand welfare benefits or health spending permanently, this would be a normative choice: there is nothing inevitable about sharp tax hikes.

Even if you think permanent scarring will occur, those taxes suggested to raise revenue seem bizarre choices today. The Government presumably wants us to be Covid-cautious still. Two ways of reducing risks would be to drive more rather than use public transport and to shop more online.

Aside from all the other downsides of raising fuel duty and introducing an online sales tax, to use the tax system to incentivise worsening virus transmission right now by making driving and online shopping more expensive seems bizarre.

Raising top capital gains tax rates to 40 or 45 per cent would simply be self-defeating from a revenue-raising perspective. Capital Gains Tax on many investments represents a double tax. The justification for having it at all is to deter people hiding income as capital gains.

But there’s a revenue-maximizing balance between this effect and deterring people from selling assets. The Coalition government introduced a top 28 per cent CGT rate precisely because HMRC research suggested this raised most revenue. Though it was then lowered to 20 per cent under George Osborne, raising it to 40 per cent plus would reduce revenue relative to a lower rate. We’d get less investment and entrepreneurship when we need it most too.

And then there’s the mooted corporation tax rise from 19 back to 24 per cent. Taxes on mobile capital will deter foreign investment just as Brexit is set to happen, as well as reducing the after-tax return on new domestic projects. Who will bear the costs? Not just “the wealthy,” as commonly asserted, but workers too: evidence suggests that they bear between 30 and 70 percent of the burden of taxes on corporations.

Not only is the tax rise call premature then, but the specific proposals don’t conform to the pandemic’s needs or Boris’s Johnson’s ambitions to create a high-wage economy. Covid-19 may permanently scar the public finances, sure. But as yet its full effects are unknown and there’s little cost to pausing to see. Anything else at this stage is using the crisis as a pretext for raising funds for hobby horses.

If the Prime Minister truly objects to this rationale as reported and understands the threat to the nascent recovery of sharp tax rises today, he should take this message to his Chancellor: on tax rises, not now and not these.

Ryan Bourne: A message for Johnson and Sunak on tax rises. Not now. And not these.

2 Sep

Ryan Bourne holds the R Evan Scharf Chair in Public Understanding of Economics at the Cato Institute. 

How’s this for a false dichotomy? Last Saturday, Prospect asked: “Post-Covid, are taxes hikes essential to fund the future? Or should we abandon “deficit fetishism” and spend our way to prosperity?” [i.e. through borrowing]. I shouldn’t need to tell ConservativeHome readers that “spend to grow” and “spend to grow”—the only difference being how to finance it—are not an exhaustive set of fiscal policy options post-pandemic.

But that tweet, sadly, reflects conventional wisdom. You should take the pre-Budget briefing in the Sunday papers about Treasury desires for £20-30 billion in tax hikes through capital gains tax, corporation tax, fuel duty, an online sales tax and restrictions on pensions tax relief with a pinch of salt. Before every recent budget such stories have emerged, perhaps due to kite-flying or overexcited journalistic coverage of illustrative exercises in how one could raise revenues. One suspects the briefings may even be a political ploy—raising fears in the Tory base before Number Ten saves the day.

Yet there’s undoubtedly an unnerving regularity to them. Alongside a steady drumbeat from “One Nation” Tories and such organisations as the Resolution Foundation, the idea that large tax hikes will be desirable and necessary is taking hold, with Covid-19 apparently making this agenda more urgent.

We are told, as the kitchen sink of argumentation is thrown, that the pandemic itself proves the false economy of a “hollowed out” state after a decade of austerity. Or that the “levelling up” and the “inevitable” higher spending we will now want on health, welfare benefits, and higher public sector pay means tax hikes are needed. Or that the crisis necessitates urgent repair to the public finances, and that there’s simply nowhere left to cut spending.

None of these arguments, however, stand the test of reason. Countries that have dealt with the Coronavirus better include those (South Korea, Taiwan, Australia) with much lower tax-to-GDP ratios than the UK and much lower health spending too. Many with higher tax-to-GDP ratios (France, Belgium, Italy) have seen similarly shocking death tolls to us.

At best, any failure to deliver resources where needed reflects bad state priorities, not an impoverished public realm. Indeed, the story of a hollowed-out state at a time of the highest tax burden since the early 1980s, coupled with this international evidence, suggests ascribing blame to austerity for poor performance is both ahistorical and parochial.

The wisdom or otherwise of  the “levelling up” agenda, and how best to pay for it, is largely unrelated to the pandemic too. Actually, to the extent that Covid-19 affects the desirability of infrastructure and public service spending in the regions, it throws substantial doubt on the benefits of projects such as HS2 and other city and town revival plans.

Who knows what lasting impact the crisis will have on remote working, the location of activity, and favoured transport modes? One Nationers arguing that the virus proves the need to level up would have us believe that the pandemic’s effects are significant enough for a tax revolution, but insignificant enough to alter the desirability of any of their proposed spending. One might almost suggest motivated reasoning here.

In macroeconomic terms, the case for significant tax rises now is weaker still. The point of bridging support through furlough was to shelter businesses and workers from this unexpected shock. To pass the bill to the private sector now as it struggles back to life would strangle the recovery. And for what? Borrowing costs are low, and we have no idea yet whether and how much this crisis will leave a permanent budget hole once emergency spending stops and private sector activity revives. In fact, even borrowing to date has not been as high as initially feared.

Of course, the extra debt to deal with the crisis has to be paid somehow, eventually. But, as I argued here before, unusual shocks such as pandemics and wars primarily result in step-level debt-to-GDP increases rather than ongoing budget holes, because you stop spending on the immediate threat afterwards.

The implication is that modest consolidation over decades is optimal to account for the extra incurred debt, rather than adopting large tax increases to compensate over a Parliament. Economists call it “tax smoothing”—debt provides a safety valve to allow us to only modestly change spending or taxation over long periods to maintain incentives. Of course, if the Government thinks that, for political reasons, it must expand welfare benefits or health spending permanently, this would be a normative choice: there is nothing inevitable about sharp tax hikes.

Even if you think permanent scarring will occur, those taxes suggested to raise revenue seem bizarre choices today. The Government presumably wants us to be Covid-cautious still. Two ways of reducing risks would be to drive more rather than use public transport and to shop more online.

Aside from all the other downsides of raising fuel duty and introducing an online sales tax, to use the tax system to incentivise worsening virus transmission right now by making driving and online shopping more expensive seems bizarre.

Raising top capital gains tax rates to 40 or 45 per cent would simply be self-defeating from a revenue-raising perspective. Capital Gains Tax on many investments represents a double tax. The justification for having it at all is to deter people hiding income as capital gains.

But there’s a revenue-maximizing balance between this effect and deterring people from selling assets. The Coalition government introduced a top 28 per cent CGT rate precisely because HMRC research suggested this raised most revenue. Though it was then lowered to 20 per cent under George Osborne, raising it to 40 per cent plus would reduce revenue relative to a lower rate. We’d get less investment and entrepreneurship when we need it most too.

And then there’s the mooted corporation tax rise from 19 back to 24 per cent. Taxes on mobile capital will deter foreign investment just as Brexit is set to happen, as well as reducing the after-tax return on new domestic projects. Who will bear the costs? Not just “the wealthy,” as commonly asserted, but workers too: evidence suggests that they bear between 30 and 70 percent of the burden of taxes on corporations.

Not only is the tax rise call premature then, but the specific proposals don’t conform to the pandemic’s needs or Boris’s Johnson’s ambitions to create a high-wage economy. Covid-19 may permanently scar the public finances, sure. But as yet its full effects are unknown and there’s little cost to pausing to see. Anything else at this stage is using the crisis as a pretext for raising funds for hobby horses.

If the Prime Minister truly objects to this rationale as reported and understands the threat to the nascent recovery of sharp tax rises today, he should take this message to his Chancellor: on tax rises, not now and not these.

Ryan Bourne: A message for Johnson and Sunak on tax rises. Not now. And not these.

2 Sep

Ryan Bourne holds the R Evan Scharf Chair in Public Understanding of Economics at the Cato Institute. 

How’s this for a false dichotomy? Last Saturday, Prospect asked: “Post-Covid, are taxes hikes essential to fund the future? Or should we abandon “deficit fetishism” and spend our way to prosperity?” [i.e. through borrowing]. I shouldn’t need to tell ConservativeHome readers that “spend to grow” and “spend to grow”—the only difference being how to finance it—are not an exhaustive set of fiscal policy options post-pandemic.

But that tweet, sadly, reflects conventional wisdom. You should take the pre-Budget briefing in the Sunday papers about Treasury desires for £20-30 billion in tax hikes through capital gains tax, corporation tax, fuel duty, an online sales tax and restrictions on pensions tax relief with a pinch of salt. Before every recent budget such stories have emerged, perhaps due to kite-flying or overexcited journalistic coverage of illustrative exercises in how one could raise revenues. One suspects the briefings may even be a political ploy—raising fears in the Tory base before Number Ten saves the day.

Yet there’s undoubtedly an unnerving regularity to them. Alongside a steady drumbeat from “One Nation” Tories and such organisations as the Resolution Foundation, the idea that large tax hikes will be desirable and necessary is taking hold, with Covid-19 apparently making this agenda more urgent.

We are told, as the kitchen sink of argumentation is thrown, that the pandemic itself proves the false economy of a “hollowed out” state after a decade of austerity. Or that the “levelling up” and the “inevitable” higher spending we will now want on health, welfare benefits, and higher public sector pay means tax hikes are needed. Or that the crisis necessitates urgent repair to the public finances, and that there’s simply nowhere left to cut spending.

None of these arguments, however, stand the test of reason. Countries that have dealt with the Coronavirus better include those (South Korea, Taiwan, Australia) with much lower tax-to-GDP ratios than the UK and much lower health spending too. Many with higher tax-to-GDP ratios (France, Belgium, Italy) have seen similarly shocking death tolls to us.

At best, any failure to deliver resources where needed reflects bad state priorities, not an impoverished public realm. Indeed, the story of a hollowed-out state at a time of the highest tax burden since the early 1980s, coupled with this international evidence, suggests ascribing blame to austerity for poor performance is both ahistorical and parochial.

The wisdom or otherwise of  the “levelling up” agenda, and how best to pay for it, is largely unrelated to the pandemic too. Actually, to the extent that Covid-19 affects the desirability of infrastructure and public service spending in the regions, it throws substantial doubt on the benefits of projects such as HS2 and other city and town revival plans.

Who knows what lasting impact the crisis will have on remote working, the location of activity, and favoured transport modes? One Nationers arguing that the virus proves the need to level up would have us believe that the pandemic’s effects are significant enough for a tax revolution, but insignificant enough to alter the desirability of any of their proposed spending. One might almost suggest motivated reasoning here.

In macroeconomic terms, the case for significant tax rises now is weaker still. The point of bridging support through furlough was to shelter businesses and workers from this unexpected shock. To pass the bill to the private sector now as it struggles back to life would strangle the recovery. And for what? Borrowing costs are low, and we have no idea yet whether and how much this crisis will leave a permanent budget hole once emergency spending stops and private sector activity revives. In fact, even borrowing to date has not been as high as initially feared.

Of course, the extra debt to deal with the crisis has to be paid somehow, eventually. But, as I argued here before, unusual shocks such as pandemics and wars primarily result in step-level debt-to-GDP increases rather than ongoing budget holes, because you stop spending on the immediate threat afterwards.

The implication is that modest consolidation over decades is optimal to account for the extra incurred debt, rather than adopting large tax increases to compensate over a Parliament. Economists call it “tax smoothing”—debt provides a safety valve to allow us to only modestly change spending or taxation over long periods to maintain incentives. Of course, if the Government thinks that, for political reasons, it must expand welfare benefits or health spending permanently, this would be a normative choice: there is nothing inevitable about sharp tax hikes.

Even if you think permanent scarring will occur, those taxes suggested to raise revenue seem bizarre choices today. The Government presumably wants us to be Covid-cautious still. Two ways of reducing risks would be to drive more rather than use public transport and to shop more online.

Aside from all the other downsides of raising fuel duty and introducing an online sales tax, to use the tax system to incentivise worsening virus transmission right now by making driving and online shopping more expensive seems bizarre.

Raising top capital gains tax rates to 40 or 45 per cent would simply be self-defeating from a revenue-raising perspective. Capital Gains Tax on many investments represents a double tax. The justification for having it at all is to deter people hiding income as capital gains.

But there’s a revenue-maximizing balance between this effect and deterring people from selling assets. The Coalition government introduced a top 28 per cent CGT rate precisely because HMRC research suggested this raised most revenue. Though it was then lowered to 20 per cent under George Osborne, raising it to 40 per cent plus would reduce revenue relative to a lower rate. We’d get less investment and entrepreneurship when we need it most too.

And then there’s the mooted corporation tax rise from 19 back to 24 per cent. Taxes on mobile capital will deter foreign investment just as Brexit is set to happen, as well as reducing the after-tax return on new domestic projects. Who will bear the costs? Not just “the wealthy,” as commonly asserted, but workers too: evidence suggests that they bear between 30 and 70 percent of the burden of taxes on corporations.

Not only is the tax rise call premature then, but the specific proposals don’t conform to the pandemic’s needs or Boris’s Johnson’s ambitions to create a high-wage economy. Covid-19 may permanently scar the public finances, sure. But as yet its full effects are unknown and there’s little cost to pausing to see. Anything else at this stage is using the crisis as a pretext for raising funds for hobby horses.

If the Prime Minister truly objects to this rationale as reported and understands the threat to the nascent recovery of sharp tax rises today, he should take this message to his Chancellor: on tax rises, not now and not these.

Alexandra Marsanu: Rather than being paralysed by the doom and gloom, we need to seize the new opportunities

7 Aug

Alexandra Marsanu is a Ward Chair at Holborn and St Pancras Conservatives and Deputy Chair for London at Conservative Young Women. She works professionally as a strategy consultant.

There is no doubt that the unprecedented health crisis will have a massive impact for the months and years to come. From heart-breaking loss of life to more than nine million workers on furlough to increasing waves of layoffs and business closures. The numbers show a grim story unfolding, and the economic one has only just begun.

That doesn’t mean however, that we should become completely paralysed by the doom and gloom. Yes, difficult times lie ahead. And yes, a pessimist or cautious take tends to catch the public mind much more easily than an enthusiastic, potentially reckless cheerleader. But as history has shown time and time again, you can always bet on Britain’s strength to survive and turn each challenge into an opportunity. And given the looming economic shifts, a re-think of how businesses are run and what skills are needed for the post-covid economy should start sooner rather than later.

The effects of covid-19 have certainly started laying out the breadcrumbs for the next waves of innovation. ‘Just-in-time’ production and global supply chains have proven vulnerable to disruption. Empty high-streets show an already struggling retail industry in need of massive transformation. Working from home has been more successful than expected as many office workers are reluctant to get back to the Pret sandwich diet or stand on a crowded tube.

A need for change on how we do things is slowly but surely emerging. Take manufacturing and supply chains. Could the flimsy global supply chains experienced in the past few months signify a need for bringing it back home? The shift to the services industry led to manufacturing accounting for just 8.7 per cent of economic output this year, down from 15 per cent in the 1990s. And given the allure of high-paying professional services or finance jobs, this is not surprising.

But as Elon Musk put it best “someone needs to do the real work”. If we don’t produce anything we don’t have anything and empty supermarket shelves and the PPE crisis back in March certainly proved that. A domestic production of basic necessities such as food, medicine and PPE, is not a bad thing to have in times of crisis. A need to speed up decarbonisation can be catalysed by investing in new technologies in such as energy storage, cheaper electric vehicles or small modular nuclear reactors. Automation, artificial intelligence and 3D printing can make advanced manufacturing attractive and help tackle the reshoring headwinds.

The success of remote working is another interesting trend to explore. Ghostly streets in Bank or Canary Wharf flag that Tramsport for London, lunch spots and office rents are in deep trouble. Without workers or tourists roaming the streets some may need to shut down for good. But while some ways of working may come back once a vaccine is ready, technology has proven that many don’t need to. Could this offer interesting opportunities in revitalising the dying high streets in small towns with the same fitness or eat-out facilities you may find in Central London? Or could this finally incentivise many more companies to not concentrate their offices in one location and move to a hub/co-working approach? A hybrid work from home model may be the future.

But given the uncertainty of the economic recovery, how can we know for sure what will change and what will stick? Nassim Taleb offers an intriguing thought in his book on the so-called black swan events:

“The reason free markets work is that they allow people to be lucky, thanks to aggressive trial and error.”

And why not take this approach?

Your typical entrepreneur seems to use this best. A new idea is tried out. The mistakes are learnt from. It is adapted. That tends to lead to better results than massive costly projects. New policies could be tested through small experiments and local community feedback. As jobs become more dispersed, a small town could try out a restructuring of its high street to become a place for entertainment and public services. Local community feedback can easily be gathered. And if it works others will quickly adopt it.

Further Education colleges and work placements can be another quick way to try out a job change and re-skill for the new economy. Instead of having millions of people compete for jobs which may no longer exist, short online courses could be used to learn new things. Digital skills can be learned and tested over a matter of weeks. Or different career paths can be tested out through re-training and short placements for career changers similar to Sunak’s Kick Start Scheme aimed at 16-24-year-olds.

The uncertainty may look numbing, but opportunities will become apparent once the crisis settles and habits change. Now is the time to tinker as much as possible with new ideas. As researchers work day and night to find a vaccine and the furlough scheme puts the breaks on an economic crash, we need to make sure that we don’t emerge unprepared on the other side.

Damian Green: Here are our One Nation ideas for reviving post-Covid, post-Brexit Britain

27 Jul

Damian Green is Chair of the One Nation Caucus, a former First Secretary of State and is MP for Ashford.

There has been a flurry of comments about One Nation Conservatism, and what it means in the 2020s, over recent weeks. This is very timely, as for many years the One Nation tradition was linked with pro-European views, to the point where views on Europe seemed to become its defining characteristic.

Those times are clearly past, and one of the aims of the One Nation Caucus of Conservative MPs is to set out a new set of policy priorities, both in domestic and international policy, which we want the Government to adopt. We hope that we are pushing at a reasonably open door, as the Prime Minister has always described himself as a One Nation politician, and certainly his levelling up agenda is absolutely in that tradition. His description of himself as a “Brexity Hezza” may have been rejected by, well…..Hezza, but nothing is easy these days.

Getting the country back on the track it voted for last December is the task for the next four years, and One Nation ideas will play a central role in the successful pursuit of that project. The last thing the Conservative Party or the country needs is a continuation of the Brexit divisions. If the only thing that matters is how you voted in 2016, we will never move on. So through the summer and autumn the One Nation Caucus will be publishing a series of policy papers designed to set out a full agenda for government in the post-Covid period.

The first of these papers is Restarting the Economy, which brings together six MPs from various intakes to address the central issue of our times. Stephen Hammond is the lead author, and he emphasises the importance of a relentless focus on levelling up to extend growth beyond London.

Key proposals in the paper include the development of new local economic bodies to drive growth, expanding the number of planned freeports, and creating technology adoption funds to support the Fourth Industrial Revolution. The report also suggests a number of policies to protect people on low incomes, including suggestions for ending consumer rip-offs, and proposals for managing repayments of Covid business loans, recommending an approach similar to the Student Loan scheme.

Each of these is a meaty idea in its own right, and the full paper is available on the One Nation website. But this array of economic ideas is only the start of the wider project to position Conservative ideas at the heart of the national political debate post-Covid.

Labour may be under new management but one of the features of the Starmer era so far has been the avoidance of any policy discussions. This is clearly a conscious tactic, but while Labour pursues it there is a space to fill in shaping the public mind. It is often observed that intellectual regeneration is more difficult inside a governing party, but it is not impossible, and is absolutely necessary if conservatism is to have another successful decade.

The financial crisis, Brexit, and Covid-19 have been three black swans that have swept aside the original plans developed the last time the Conservative Party was in opposition. They have incidentally also swept aside Tony Blair’s fond idea of making the twenty-first century “the progressive century”, by which he meant the New Labour century. How does that look in 2020?

So now is exactly the right time for One Nation Conservatives to think hard and set up debates. After the economic paper our next publication will be on social mobility, how we can bring it back, and why we must not think about it in traditional terms. Following that we will be publishing a paper on the environment, showing how capitalism is not the enemy of achieving carbon New Zero, but the only way of reaching it.

Future papers will look at Britain’s place in the world, covering trade and aid, and specifically what the new configuration of the Foreign Office and DfId offers in the realm of making our aid spending (which One Nation Conservatives strongly support) more effective in the future. We will also be taking a hard look at schools and what they can do better to spread opportunity, and at the new world of work.

It is very pleasing that all cohorts of the Parliamentary party have contributed to these papers. Former Ministers have worked with many members of the 2019 intake on the individual ideas, proving that there is no shortage of new thinking on the back benches, and that One Nation ideas are alive and well in the rising generations within the party.

Whether or not you think of yourself as a One Nation Conservative, I hope you will welcome the fact that those of us who are in that tradition want to contribute publicly to the key debates that will dominate the coming decade. The public will of course judge the Government mainly on its actions. But every political party needs to demonstrate that it can apply its principles to new circumstances. In a world that changes as fast as this one constant intellectual regeneration should be our goal. The One Nation recovery papers are a contribution to that.

Neil O’Brien: No, more economic prosperity doesn’t depend on more social liberalism

13 Jul

Neil O’Brien is MP for Harborough.

Danny Finkelstein took issue with Boris Johnson’s idea of “levelling up” in the Times the other day. He reviewed the work of Richard Florida, a thinker dubbed the “patron saint of avocado toast” for highlighting the role of bohemian urbanites in driving economic regeneration.

Danny concludes from his work that, “Social liberalism and economic prosperity go together.” He argues that: “in order to match the success and power of metropolitan areas, non-metropolitan places need to become more… metropolitan.  The problem with the metropolitan “elite” isn’t that there is too much of it. It’s that there aren’t enough members of it, drawn from a wide enough background and living in enough places.”

I hesitate to disagree with one of the smartest columnists on the planet. But economic growth and social liberalism don’t always go together.

What about the Victorians, combining breakneck growth with a religious revival and tightened public morals? What about Japan during their postwar decades of blistering growth and conservative “salaryman” culture? Over the last 70 years, Britain has become more socially liberal as our growth rate has slowed.

Even in Britain today, it’s highly questionable. London is the richest and fastest growing part of the UK.  But where is opposition to homosexuality and pre-marital sex strongest? London. Where is support for censoring offensive speech highest? London.  The capital mixes liberal metropolitan graduates with religious immigrants. Its success is shaped by both.

Danny’s other argument has more important implications. Is it really the case other places must emulate London to succeed? Like other capital cities across Europe, London has grown faster than the rest of the country since the 1980s. The shift to an economy based on “office jobs” over has favoured the centres of larger cities.

But we shouldn’t get too carried away by the idea that hipster-powered megacities are sweeping all before them. For starters, there are successes elsewhere. Cheshire has high tech in a rural setting, with productivity and wages above the national average.  Milton Keynes likewise, because it’s easy to build there. Productivity in Preston has grown faster than average because it’s a transport hub with advanced manufacturing.

On the surface, large cities outside London have done well.  Since 1997, our 16 largest cities grew their GDP faster than their surrounding areas: Leeds grew faster than West Yorkshire, Manchester faster than Greater Manchester, and so on.

But on average, those cities saw also slower growth in income per head than their surrounding areas. In other words, people became more likely to work in city centres, but that growth was fuelled by people commuting in from smaller places around them. Their growth has been powered more by smalltown commuters than flat-cap wearing uber-boheminans.

It’s right that there are cities outside London that have things in common with it, and might benefit from similar investments. Lawyers in London will soon get Crossrail. So why have lawyers in Leeds waited 20 years for a tram?

But too often Richard Florida’s work leads politicians to focus on shiny cultural facilities. A cool art gallery in West Brom.  A national museum of pop music in Sheffield. It’s not just that these projects flop and close. It’s that they distract from two bigger issues.

First, most people aren’t graduates – so we need a plan to raise their productivity and wages too.

Second, places outside urban centres are perfectly capable of attracting high-skill, high income people – with the right policies.

Britain’s economy is unusually unbalanced compared to other countries.  Pre-tax incomes in Greater London are nearly 60 per cent higher than the national average, but more than 20 per cent below average in Yorkshire, the North East, Wales and Northern Ireland.  These imbalances mean our economy is overheating in some places and freezing cold in others, slowing growth overall. There are no major economies that are richer per head than Britain which have a more unbalanced economy.

But these imbalances don’t represent pure free market outcomes. It’s true that low-skill, low wages places can get stuck in a vicious circle. True that some places on the periphery have very deep problems. Nonetheless, the British state doesn’t do much to stop that – in fact it does a lot to unbalance growth.

Consider how we spend money. Capital spending on transport infrastructure in London is nearly three times the national average. Research funding per head is nearly twice the national average. Nearly half the core R&D budget is spent in Oxford, Cambridge and London. Spending on housing and culture per head in London is five times the national average. We’re “levelling up” the richest places.

We’ve rehearsed these problems for years, but not fixed them. Instead of chasing flat white drinkers, we need to find a cool £4 billion a year to level up R&D spending in other places to the levels London enjoys. Fancy coffee can come later.

Consider our tax system. Overall, the tax rate on business in the UK is about average.  But we combine the lowest headline rate in the G20 with the lowest capital allowances. The combined effect of this is a huge bias against capital intensive sectors, particularly manufacturing.

That in turn has a regional impact, hurting places more dependent on making things: manufacturing accounted for only five per cent of London’s productivity growth since 1997, but nearly 50 per cent in the north west. A hostile tax system is one reason Britain has deindustrialised more than any other G20 country since 1990, and why manufacturing’s share of the economy is half that in Germany or Japan.

Manufacturing should be a key part of levelling up outside cities: it needs space, not city centre locations. In English regions outside London, wages in manufacturing are about nine per cent higher than in services, and manufacturing productivity grows faster than the economy as a whole.  But Britain’s excessive focus on professional services makes it harder to grow high-wage employment in non city-centre locations.

Consider where we put our key institutions. In Germany the political capital was Bonn, and is now Berlin. The financial capital is Frankfurt. The Supreme Court is in Karlsruhe. The richest place is Wolfsburg, home of Volkswagen. There are major corporate HQs spread across the country. TV production is dispersed because central government is banned from running it.

In Britain, all these things happen in just one city. We’ve talked about this for years, but made little progress.  In recent years, we managed to move one chunk of Channel 4 to Leeds, and a bit of the BBC to Manchester. But that’s about it. Whitehall only wants to move low-end jobs.

The debate on levelling up is frustrating, because we know some things work, but we don’t do them. “Regional Selective Assistance” boosted investment in poor places with tax breaks and subsidies.  Thanks to evidence from natural experiments, we know it boosted growth. Yet it was allowed to wither.

I don’t want us to be just another government promising the world, then not delivering. Politically, it’s vital we deliver. Lots of people who haven’t voted Conservative before put their trust in us last year. It’s telling that the centre point of the seats we won is just outside Sheffield.

We won on a manifesto combining centrist economics, (50,000 more nurses) mild social conservatism, (ending auto early release) and national self-confidence (Getting Brexit Done).  Levelling up is central to all this. We promised voters steak and chips.  We could serve up avocado toast instead, but we shouldn’t be surprised if the voters don’t thank us.

Sunak’s measures: What do they look like, where’s the money coming from and how do they compare to other countries’?

9 Jul

The public has fast become used to radical economic announcements from Rishi Sunak, starting with his budget in March, and yesterday was no different in terms of shock factor. Standing in the House of Commons, he laid out how the Government will further try to ease the economic damage from Coronavirus, in a £30 billion plan. “We need to be creative”, he said, and he did not disappoint.

In the immediate, Sunak wants to stop a wave of mass unemployment. To do this, the Government will incentivise firms to hang onto their employees – paying them a £1,000 bonus for every staff member kept on for three months after the furlough scheme ends (as long as they are paid a minimum of £520 on average each month between November and January).

Sunak’s employment measures are especially geared towards the young, who have already been badly affected by the Covid-19 fall out. The Government will spend £2 billion on a “kickstart” work placement scheme, to get up to 300,000 16 to 24-year-olds into employment, as well as paying firms a £2,000 apprenticeship bonus for each new apprenticeship they create over the next six months.

Sunak is also keen to breathe life into the hardest-hit sectors. To boost the hospitality industry, he has cut VAT on food, accommodation and attractions from 20 to five per cent from next Wednesday. The measure will remain in place for six months, will benefit an estimated 150,000 businesses and is said to cost about £4 billion

Perhaps the most memorable announcement from his budget is the “Eat Out to Help Out” scheme. It means that anyone visiting a restaurant or pub between Monday and Wednesday in August can get up to 50 per cent off their bill, with a maximum of £10 per customer. Businesses can then claim the money back from the Government.

How much will it cost?

None of this is cheap, of course. The Institute of Fiscal Studies (IFS) suggests that borrowing will exceed £350 billion as a combined result of previously-announced policies and the recession. The FT estimates that the deficit will reach 18 per cent of national income, and will be almost twice the size of the deficit at its peak in the 2008-09 global financial crisis.

Aside from borrowing, many details remain unknown as to how this will be paid back, and where Sunak’s plans are ultimately leading us. John O’Connell, Chief Executive of the TaxPayers’ Alliance, told ConservativeHome today: “Tax receipts have absolutely plummeted since the arrival of coronavirus. Total HMRC receipts in April and May 2020 were £45.2 billion lower than the previous year.

“At the same time, the OBR estimates that the total cost of the job retention scheme could exceed £50 billion by the time it ends in October. To pay for these massive shortfalls the Debt Management Office revealed that Britain is set to sell a record £275 billion of government debt in just five months between April and August. Incredibly, this is more than two and a half times the gilt sales for the previous financial year.”

He added: “As usual there have been calls for taxes to rise to balance the books but this isn’t sensible or feasible when the tax burden is already at a 50-year high. The last thing we need is to inflict austerity on taxpayers. It would be far better to eradicate wasteful spending and grow the economy by slashing taxes and cutting red tape.”

As ConservativeHome reported yesterday, centre-right think tanks have generally been concerned about the tax burden. Following yesterday’s announcement, Sunak was quizzed on LBC about whether there would be tax rises, which he did not rule out.

What do economic measures look like elsewhere?

While there are concerns about how enormous Britain’s payments will be, the UK’s stimulus actually puts the country “in the middle of the pack” of spending when compared to others across the world. Data from the Resolution Foundation measuring countries on the size of their fiscal response to coronavirus as a proportion of GDP (as of June 2020) puts the UK behind the US, Germany, Japan and Australia, but above Canada, France, the Netherlands and Italy.

Other data from Bruegel Datasets is around ‘discretionary fiscal measures adopted in response to coronavirus’ by June 15 2020, as a percentage of 2019 GDP, with UK standing at 4.8 per cent; the US at 9.1 per cent and Hungary at 0.4 per cent, alongside other countries.

So while Sunak’s measures look drastic, it’s worth remembering that the UK’s economic snapshot cannot be taken as a standalone, as others are taking serious action too. The eventual cost for the UK, and what happens next in the pandemic, is anyone’s guess.

Ryan Bourne: Sunak should not and cannot try today to restore pre-virus Britain. It’s gone – and we must now adapt.

7 Jul

Ryan Bourne holds the R Evan Scharf Chair in Public Understanding of Economics at the Cato Institute. 

Rishi Sunak earned plaudits for his dealing with the immediate economic fallout from Covid-19. Yet today’s summer statement presents a thornier challenge than playing Emergency Santa, dishing out funds to keep businesses alive. For today requires taking steps to further facilitate the “normalisation” of economic life.

Boris Johnson waded into economics last week, arguing (rather conveniently) that the Coronavirus highlighted the need for his pre-pandemic “leveling-up” agenda. Exactly how Covid-19 proves the need for, say, HS2 is unclear. But underpinning the Prime Minister’s argument was an assumption that, post-lockdowns, we can get back to focusing on pre-virus priorities – in the Government’s case, state-led economic rebalancing.

Similar “back to our future” thinking underpins business representations ahead of this statement. From calls for taxpayer-financed high street spending vouchers, to VAT cuts for hard-hit sectors, the prevailing discourse appears to be “now the virus is less of a threat, let’s incentivise returning to normal activity,” with “normal” meaning “what happened in early March 2020.”

Perhaps it’s because I’m in the U.S. and so have been to this reopening BBQ before, but I bear bad news: while the UK can expect a relatively sharp bounce-back in things such as retail activity, “normalisation” will not and should not mean a return to the economy of March 2020.

Before a vaccine, consumers will go where they feel safe, businesses from restaurants to cinemas will be supply constrained by social distancing, and certain behaviors (from the demand shift from restaurants to supermarkets, to the supply shift to working from home) will partially remain. That will bring major reallocation costs: businesses will close and lay off workers, while other sectors grow.

It was understandable that the Chancellor, not knowing which businesses would be viable after lockdown, set up a furlough scheme to avoid companies and jobs perishing. This helped protect important “job-matching capital” and “firm-specific capital” – i.e. people doing jobs they are good at and firms as important bundles of productive relationships. But one risk was always that businesses would interpret support not as mere lockdown relief, but a commitment to ensure their survival through the whole pandemic.

Some aspects of the campaign for arts subsidies, rumblings by MPs for ongoing aerospace supply-chain support, and the Resolution Foundation’s gimmicky “high street vouchers” idea suggest that some now do believe the Government should support sectors, even after full re-openings, precisely because consumers would otherwise continue to reject them, preferring not to fly as much, attend as many in-person events, or go to fewer restaurants or stores.

This is a very different policy proposition. Attempting to keep the March 2020 economy preserved as some eternal truth would mean workers and funds not being where businesses and consumers actually value them given today’s circumstances, bringing large economic costs beyond the fiscal.

For example, if more professionals now work from home semi-permanently, then tastes will shift from buying lunches within cities to local delis, online, or at supermarkets. Hence why Pret is laying off workers.

But as Julian Jessop has said, the purpose of economic policy should not be to protect Pret jobs. What normalisation should instead mean is the return to a functioning market economy where the rise and fall of businesses depends on their ability to meet our wants and needs in today’s circumstances. Sunak’s aim, in other words, should now be “market-led adaptation to the virus.”

We want businesses to figure out how to serve us in safe, cost-effective ways. The alternative – having the government tilt activity towards our early 2020 preferences – would not only encourage activity worse from a public health risk perspective, but also inevitably subsidise much that would take place anyway.

So Sunak should today reject “painting by numbers Keynesianism” that sees industry spending collapses as holes taxpayers should help fill in. He should snub VAT cuts or vouchers. If, with the virus still around, people would rather spend money on food to cook at home, Netflix subscriptions, and a hot tub for the back garden over restaurants, cinemas, and trips to the Lake District, workers and capital should flow accordingly. Economic activity serves consumers, not vice versa.

That’s not to say government cannot make this process less painful. But we need to be clear about the challenge we face: a supply-side shock we hid with relief. New realities mean workers in the wrong jobs, businesses serving customers in the wrong ways, and capital in the wrong places. Government policy should focus on removing barriers that gum up businesses, landlords, workers and entrepreneurs adjusting.

Sunak appears to get this on the worker side. He is tapering the furlough scheme gradually to give businesses breathing room, but inevitably those with newly uneconomic business models will make some permanent layoffs.

It’s crucial to try to get workers reallocated into new roles quickly to avoid the scarring effects of unemployment. Direct financial incentives for new hiring, even beyond subsidies for traineeships trailed in the papers, would encourage this. The reported plans for expansions of jobcentre capabilities are important too to try to speed up the matching process of unemployed workers to new roles, as would re-training efforts be. Some U.S. states are rolling back licensing restrictions on people shifting to different jobs too. With child-care difficult to come by, now would be a good time to review the UK’s oppressive childcare regulations, for example.

Yet the Conservatives should do more to facilitate the adaptation of businesses as well. Repurposing premises to earn consumers’ confidence often requires upfront investments that the Chancellor should write-off entirely for the basis of tax, through full expensing of investment. The planning law reforms should have an eye to business activities too – if more out-of-town activity is demanded, let it bloom.

The case for allowing existing businesses and property owners more flexibility – on how they operate, opening hours, what premises can be used for etc– is overwhelming as well. With apologies to my Editor, when we are seriously discussing throwing billions at retailers such as John Lewis or Topshop through vouchers, it seems daft to consider it beyond the pale that such retailers open beyond 6pm on a Sunday. Give freedom to businesses to adjust to what customers want: what barriers exist to entrepreneurs developing drive-through cinemas, for example? These are the sorts of supply-side questions that should animate government.

As always with fiscal events, any financial support to industries will be heralded as ‘good news’  and absence of it denounced as throwing sectors to the wolves. But it’s time for Sunak to be bold and honest: his task is not to “normalise” activity by resuscitating the composition of the March 2020 economy, but to “normalise” the market-led economy that makes us rich by meeting our demands.