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Let’s break the cycle of decline and go for prosperity

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BRITAIN is being slowly strangled. The Conservative and Labour Parties have increasingly morphed into a bureaucratic establishment who tax, regulate and control, with little difference between them. Choice is being curtailed and personal freedom from the economic to civil liberties greatly eroded. 

In the economic sphere, lockdown has exacerbated trends which were already all too apparent. The State now accounts for a staggering 56 per cent of GDP levels – not far off the Eastern bloc in Soviet times – regulation is running amok as Government directs this and that believing it knows best, and the public finances are in total disarray. 

Consider this: between the Napoleonic Wars and 2005 Britain’s accumulated debt was £550billion. By 2011 it had soared to £1,100billion. Now, partially as a result of lockdown, the official forecast is for £2.8trillion of debt by 2025. I think it will be materially worse. This is at least a fivefold increase in a short generation. It cannot continue like this. 

The Chancellor last week compounded the problem. He raised taxes further, to the highest aggregate level since the late 1960s when Roy Jenkins was Chancellor. He complicated the rule book again and established Green and Infrastructure funds to pick winners – as if government was ever much good at that.  

Worse, he accepted mediocrity. His official forecaster, the Office for Budget Responsibility, anticipates trend growth in the range of 1.6-1.7 per cent per annum. This is simply not good enough. 

Growth really matters as it fuels the prosperity of the land and secures the underlying taxes that pay for the NHS, education and the police. Ever since the 1960s, Britain has seen declining growth. There is nothing inevitable about this decline. Sure, looking through a European lens, the UK has done quite well, but compared with other advanced economies, notably Australia, Canada and the US, we have performed astonishingly poorly.  

Why should our growth be merely half Australia’s and substantially worse than Canada’s? If Britain had grown at the same rate as Australia since 2005, the economy today would be £410billion bigger (20 per cent) with potentially a second NHS funded from an extra £150billion of tax receipts. 

In this technological age, when Britain has so many strategic advantages – the City of London, some of the world’s finest universities and scores of other leaders, outstanding cultural and artistic assets and myriad others – our performance is woeful. Our political class are to blame as they pick winners, distort, tax and regulate the very life out of creativity and growth. This government is yet a further manifestation of command and control. It simply does not trust those who elect them. 

However, some hope of a better approach has been offered. Richard Tice, the new leader of Reform UK, used his opening speech not for platitudes but for real change. Never before, to my knowledge anyway, has a leader of a political party opened with a serious lecture and detailed plan to arrest this economic decline and attack on freedom.   

Richard Tice and I co-wrote a major paper challenging this dreary consensus. A link to the paper is here and you can see a presentation about the plan here

Our strategy is to reduce, simplify, and grow. Let’s break the cycle of decline and well-intentioned mediocrity and instead create a virtuous circle of growth, increased tax revenues and prosperity.  

In a nutshell we propose cutting taxes by £48billion (2.2 per cent stimulus) which sounds a lot but is actually just 12 weeks spending on Covid-19. This will stimulate growth and we believe be self-funding in under five years with a more sustainable tax base and much greater national prosperity

All will benefit, but those on modest incomes will benefit the most. Our principle is to simplify and abolish where possible – with rates of zero per cent, 20 per cent and 40 per cent across most taxes with an emphasis on substantially increasing thresholds before any tax is paid.  

Some 6.3million low-paid workers would pay no income tax at all. Everyone earning over £20,000 per annum would be at least £1,500 a year better off. This would be partially funded by an end to pension credits with a subsequent paper dealing with our plans to create wealth for the many through new savings and pensions schemes. 

We would slash stamp duty, abolish VAT on domestic fuel, and abolish Inheritance Tax for all but the very largest estates (over £2million). We will abolish air passenger duty – we all deserve a holiday after this lockdown and the travel industry needs a boost. Why should Government distort in this fashion anyway?  

We would exempt 80 per cent of companies from paying Corporation Tax by raising the threshold from zero to £100,000, encouraging micro business to grow. These are the very businesses that have been hit so hard by the lockdown yet provide the jobs and growth for the future. What’s more, we think this would be self-funding very quickly though employment growth. 

Our opponents will say you can’t do it. It costs too much. They will retreat into their bunker of comfort – taxing and spending and reducing the cake further. They are wrong. Our plans are self-funding on a five-year view and accretive post that. They will ultimately protect the public services though faster growth and higher tax receipts. This faster growth will create a virtuous circle of increasing prosperity, enabling further reforms and lower tax and better services still.  

Sure, tax is only part of the challenge facing this nation but once the people are freed other good things will flow. Tice’s address marked for the first time since 1979 a genuinely new approach. Watch out. We aim to challenge this stifling consensus and change the terms of the debate. 

This article first appeared in Brexit Watch on March 9, 2021, and is republished by kind permission.

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Ewen Stewart
Ewen Stewart is a City economist who runs the consultancy Walbrook Economics. He is director of the think tank Global Britain and his work is widely published in economics and political journals.

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