Sunday, December 01, 2019
More Stoke-on-Trent than Singapore-on-Thames
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

General elections are occasions when political parties can set out their visions for the country, allowing voters to choose between their wares. Labour has done so emphatically, as discussed here last week. We can say, beyond any doubt, that the country would look very different after five years of a Jeremy Corbyn government.

But what about the Tories? They have come out with a manifesto so devoid of content and vision that they might as well have not bothered. If it was intended to be instantly forgettable, it was a great success. Otherwise, instead of the roar of a lion, we had the squeak of a mouse.

Now I know what the politics behind this was. The Tories were desperate to avoid anything that would get in the way of the central message of “getting Brexit done”. The ghost of Theresa May’s 2017 manifesto, and a social care plan hastily put together and presented to voters, and most of an unconsulted cabinet, hangs heavy over Conservative Campaign Headquarters.

Even so, the omens are not good. Readers will remember a time when enthusiastic Tory Brexiteers talked about creating a “Singapore-on-Thames”, a super-competitive, low-tax, de-regulated, enterprise economy after Brexit.

It was the kind of message that provoked concern elsewhere in Europe, and a bit of a pushback from some Singapore people, who protested that it was not the freebooting entrepreneurs’ paradise it was portrayed as. Even Philip Hammond, the former chancellor, talked of adopting a different model for the UK economy. In the immediate aftermath of the referendum three years ago, this newspaper advocated cutting the main rate of corporation tax to 10% to ensure that Britain remained a magnet for foreign direct investment.

Well, looking at what the Tories have in mind for the next five years, it looks like more of a case of Stoke-on-Trent or Stockton-on-Tees than Singapore-on-Thames. Both are estimable places. Stoke was the pottery capital of the world and Arnold Bennett, one of my favourite authors, is one of the city’s most famous sons. Stockton can lay claim to the railway heritage of George Stephenson and the inventor of the friction match. People in both places would also accept, however, that a successful past is no guarantee of a glorious present; far from it.

Under the Tories’ modest proposals, the main rate of corporation tax will stay at 19%, rather than being cut to 17%, as previously planned, so a lot higher than 10%. Beyond the announced rise in the National Insurance threshold to £9,500 next April, there is no obvious room for tax cuts if the party is serious about meeting its fiscal rules.

The starting position on tax is what the Institute for Fiscal Studies (IFS), describes as the “highest sustained level” for the tax burden since the late 1940s, when the economy was being brought down from a wartime footing. Most other European economies have a higher tax burden than Britain, it should be said, and under Labour it would be higher still. But the Tories under Boris Johnson appear to have shed their ambitions to be a low-tax party.

It may be that this reflects the political and economic reality. After the austerity years, tax cuts no longer win votes. Johnson’s idea of increasing the higher rate tax threshold from £50,000 to £80,000, left out of the manifesto, went down like a bit of a lead balloon in polls. The Tory proposition, apart from delivering Brexit, is that it can deliver affordable and fiscally manageable increases in public spending.

The idea of a post-Brexit bonfire of red tape also appears to have slipped down the list of political priorities. The scope for product or labour market deregulation is, in any case, limited. Britain is already among the lightest regulated advanced economies in the world in these areas, according to the Organisation for Economic Co-operation and Development. Where there is scope for de-regulation, in our absurdly complex tax system and in planning, the red tape is home-grown, and setting fire to it has been within the gift of successive governments.

The Institute of Economic Affairs, indeed, warns that the Tory “tax triple lock” of pledging not to raise income tax, VAT or National Insurance, “is a recipe for further complicating the tax code, as government officials desperately look to find cunning ways to increase state revenue without breaching the specific terms of this catchy, but ill-judged, manifesto commitment”. Quite a lot of the increase in the complexity of the tax system in recent years has been due to parties avoiding breaking manifesto pledges on headline tax rates.

It is not all about low taxes and deregulation. Good governments enthuse, and create a climate in which businesses want to invest and expand. They bring out the “animal spirits” of entrepreneurs. All this government does is promise a post-Brexit investment boom, without doing anything to help bring it about.

The Tories in even wanting to change the state aid rules so they can prop up failing industries, and adopt a "buy British" policy for government procurement, sound as though they are playing a game of anti free market, protectionist Bingo.

So on the face of it, all we can look forward to in the next few years is that, after a modest boost to growth next year as a result of Sajid Javid’s one-year spending boost. The economy settles down at a lacklustre pace of about 1.5% growth a year, well below its long-run rate. Or worse, we get over the Brexit line and collapse in in an exhausted heap.

It would be good to be more optimistic, and some of the investment banks are trying to push a bullish view of the UK. Do not carried away, however. What Goldman Sachs describes as a “post-election pick-up”, may only lift growth temporarily to a little over 2%. Businesses will remain very cautious about investing until they know what Britain’s future relationship with the EU looks like.

Inspiration is definitely lacking. The Tories are giving the impression that achieving Brexit is a bit like the dog chasing a car. Once it has caught it, it does not know what to do with it.