On the evening of the autumn statement, Victoria Derbyshire sat down with chief secretary to the Treasury John Glen MP for a Newsnight interview he might like to forget. He was skewered with a whole series of shortcomings in the Conservative party’s management of the economy since 2010.
In the last 12 years, observed Derbyshire, both growth generally and associated productivity growth had flatlined. The UK was the only G7 economy that had not yet recovered to its pre-pandemic level of output. We are about to experience the sharpest decline in living standards in 70 years whilst at the same time migration into the UK is set to rise to 140,000 per year (exactly what many people who voted for Brexit were dead set against).
“What is the point of voting Conservative?” she asked, before continuing the litany of failures.
The USA, Canada, Japan and France all had national debt figures worse than those of the UK. Yet no other nation was seeking to impose a series of public spending cuts and tax increases (albeit backloaded for the next government to inherit) in order to balance the books.
“It’s a political choice, isn’t it?” rang the telling question.
This impression is reinforced – as the shadow chancellor Rachel Reeves pointed out last Thursday in her reply to Jeremy Hunt – by him taking advice on how to frame his statement from George Osborne, the architect of austerity.
The Autumn Statement – some good, mostly bad
UK public finances are in a mess and this is a problem. But it is only a ‘second order’ problem – meaning there are more urgent matters to deal with. It would be churlish to imply that there was nothing good about what is in effect the budget. In one positive move, the taxation of retailers has been adjusted to be far tougher on online retailers and thus restore some fairness between them and high street shops.
I can scrape around for some more good bits, but these are outweighed significantly by the bad. The rate of the windfall tax has increased but scope for using loopholes is so wide that Shell, for example, have yet to pay any tax. My main criticism is that of opportunities missed.
What more could be done?
Far too little has been done to protect the worst-off in the economy – those who are most vulnerable to price rises. By failing to index to inflation the point at which income tax kicks in, people who previously fell outside the income tax system will now be drawn in as their money income rises whilst their real income (ie post inflation) falls.
Those with significant wealth and/or high incomes have got off lightly. The case for imposing a wealth tax grows stronger month by month, as is exemplified by work being carried out by economists both at the London School of Economics and Warwick University – and beyond.
If the broadest shoulders are to bear the burden of rectifying Tory mismanagement of our public finances, then there is a strong case for a 60% tax rate on levels of income of over £200,000 p.a.
Land value taxation is another potential source of revenue for the Treasury. A tax like this works well in other countries and has the twin advantages of being progressive and non-distortionary. It also has the beneficial side effect of making for more efficient land use. But the Treasury team is so blinkered that land value taxation would not have registered in their peripheral vision.
‘First order’ economic problems … and the obvious solution
If the national debt and deficit are ‘second order’ problems, what constitutes a ‘first order’ problem? Well, to start off with we can look at the UK’s performance in international trade – the balance of payments on current account.
Use the above link to access the horror story that is the UK’s recent trade performance. In the second quarter of 2022 the deficit was a huge £33,768 million. Did this get a mention in Hunt’s speech? I think not.
And what is the swiftest and most effective way to start to rectify that deficit? For the UK to rejoin the EU single market. Michael Saunders, until recently a member of the Bank of England monetary policy committee, has given his opinion that without Brexit, we would not now be talking about austerity. Rejoining the single market would make life far simpler for UK exporters and increase their sales and profits (some of which would flow to the Treasury as tax receipts)
The UK coming back inside the single market would also almost certainly stimulate the amount of foreign direct investment that used to come into this country when we were in the EU but has virtually dried up since 2016. That investment will help boost productivity growth – currently flatlining, as Derbyshire noted.
A Roosevelt moment for the UK
In the USA of the 1930s the incoming president Franklin Roosevelt took the bold steps necessary to inaugurate the ‘New Deal’. What was needed in this autumn statement was a similarly bold plan to revive the UK economy.
Growth, however, is in not automatically good. What is needed is green growth – a new deal that would get the economy going again, but on a greener basis, giving rise to quality jobs as ways were found to engage in economic activity that took the UK towards a carbon-neutral economy.
Quality jobs paying well would start to deal with the cost-of-living crisis. Fairer taxation and redistribution would take us yet further along that road. And I am confident the markets would have smiled on any government borrowing to fund a green growth industrial revolution.
The main opposition parties all have plans for generating economic activity via ‘green’ projects. Labour, for example, has a ‘Climate Investment Pledge’ to invest £28bn capital each year in the green economy, whilst the Liberal Democrat manifesto promises “support for innovation to cut energy and fossil fuel use in industrial processes – reducing emissions, cutting dependence on fossil fuel imports and generating jobs and prosperity”.
But how much of this did we get from Hunt? Next to nothing. No vision. No imagination. No flair. Half a cup of compassion. A blinkered Tory borrowing from the George Osborne playbook.
We all deserve better!