Who said these words just over two years ago? “It is no use simply claiming we want economic growth without new ideas for how we can achieve it.”
That’s right: the same person whose dismal Budget the OBR found to contain a grand total of zero policies which they estimate to increase GDP by 0.1 per cent five years down the line.
The Government’s growth agenda was always, at best, vague. Now it seems the pretence of having one at all has been shelved.
So too has the façade of “iron-clad discipline”. The supposedly “one-off” massive increase in public spending during the pandemic to £1.1tn looks positively austere compared to the Chancellor’s plans to increase it to more than £1.5tn by the end of the Parliament.
In real terms, spending is set to be nearly 10 per cent higher than it was during 2020-21, when the state was paying the salaries of nearly 9 million furloughed workers. Taxes will inevitably rise to their highest ever level.
If there is any consolation to this, it is that the public hates it. By margins of two to one, the public believes the Budget to be unfair and unaffordable. And by a ratio of nearly five to one they think it will make the country worse off.
What was striking to me when I interviewed dozens of former policy makers for the book I co-authored, Prosperity Through Growth – including former prime ministers, chancellors and treasury officials – was the scale of agreement over what needs to be done.
None of them thought the UK’s problems were the result of inadequate levels of welfare, taxation and public spending. This includes figures from the Liberal Democrats and Labour, which shows how far to the Left these parties have moved.
This represents a markedly different environment from that of 1981, when Geoffrey Howe’s Budget prompted 364 leading economists to write a letter stating that the it had “no basis in economic theory”.
The tragedy is that we can see exactly where the road the Chancellor has chosen to take leads. With growth prospects downgraded yet again, it’s clear that the medicine being administered by this Government is only making the patient sicker.
Analysis by the Centre for Economics and Business Research shows that, on our current trajectory, the United Kingdom is set to be overtaken by fast-growing Lithuania in GDP per capita by 2030. Even more sobering, we are on the path to being poorer than Turkey by 2040.
A nation that was the cradle of the Industrial Revolution, a G7 powerhouse, is drifting toward economic mediocrity, soon to be outpaced by emerging economies that now understand the value of enterprise better than we do. We are witnessing a slip turn into a slide. All of it is entirely predictable and avoidable.
The problem is not a lack of tax revenue. It is a lack of incentives. In Prosperity through Growth, we outlined the “Five Kingdoms” of economic policy: taxation, government spending, monetary policy, regulation, and trade.
In every single one of these kingdoms, the Government chose the path of decline on Wednesday.
Take taxation. Last year, the Chancellor hiked capital gains tax and employer National Insurance, a tax on jobs that made it expensive to hire and harder to expand.
It failed to fill the black hole then, and it has stifled investment since. Yet yesterday, instead of reversing course, she doubled down. Extending the freeze on income tax thresholds is a stealth tax on aspiration, dragging millions of ordinary workers into higher brackets.
Again there are positive signs that the public has become wise to this trick: understanding of fiscal drag is growing.
The new raid on council tax for larger homes is a direct assault on the family home, punishing those who have worked hard to save. Does anyone seriously believe that these thresholds won’t be lowered and rates increased over time?
Then there is government spending. The state has become a leviathan, consuming ever-greater shares of our national income while delivering public services that leave citizens frustrated and underserved. The productivity collapse in the public sector since the pandemic is a national scandal.
Yet, instead of rigorous reform or demanding that every pound spent delivers value, the Chancellor’s instinct is simply to feed the beast. We are locking in massive increases in welfare bills at record highs while millions languish on out-of-work benefits, a waste of human potential that is economically ruinous and morally indefensible. It seems that only Labour MPs are happy for this to continue.
Regulation, too, has become a stranglehold. The measures coming in the employment rights Bill layer new burdens on employers, making it harder to hire and costlier to do business. The OBR hasn’t even factored this impending disaster into its forecasts yet.
These are the same forecasts the chancellor bizarrely points to as justification for her “hard choices.” She claimed she is being “responsible”. But true responsibility is not (badly) managing decline. It is reversing it.
It is understanding that the OBR’s models often fail to capture the full dynamic effects of pro-growth policies. When you cut taxes on investment, you get more investment.
When you lower the barriers to work, you get more workers. When you signal that Britain is open for business, the world takes notice. This week she signalled the opposite.
We need a 24/7 Growth Plan, not the managed retreat we saw yesterday. We need to be bold enough to abolish the taxes that distort behaviour most, like stamp duty and inheritance tax, which gum up our housing market and discourage capital accumulation.
We need to flatten our tax structures to make them simpler and fairer. We need to reform our planning system so that we can build the infrastructure of the future. And we need to embrace free trade with our friends and allies around the world, maximizing the opportunities of our independence.
The Budget was framed as a “tough” package to fix the foundations. But stripping the incentives out of an economy is not tough. It is the self-defeating, “sticking plaster politics” the Prime Minister allegedly so abhors. It is the easy way out for a bureaucracy that has run out of imagination.
Time is running out. 2034 is less than a decade away. If we want to avoid the humiliation of being overtaken by countries we recently regarded as economic backwaters, if we want to ensure our children inherit a nation that is prosperous, dynamic, and free, we must change course now.
We cannot afford another wasted year of high tax and low growth. We need to align the country’s compass to the North Star of economic growth, so we achieve the rising living standards and prosperity we desperately need.
Lord Elliot is the President of the Jobs Foundation and the co-author of Prosperity Through Growth
