HAMISH MCRAE has five tips for the Chancellor, but says Jeremy Hunt is right to dismiss gloom about economy we hear so often from commentators
Talking tough: Chancellor Jeremy Hunt
The Chancellor, Jeremy Hunt, is right in wanting to dismiss the economic gloom we hear so often from commentators, but there are real forces holding the economy back. Let’s see what he is going to do about those.
On Friday, Hunt had an interview with Bloomberg in which he attacked ‘decline-ism’; said that the Brexit freedoms would increase productivity and growth; called for older people who had dropped out of the workforce to get back into work; and said that HS2 would end up in Euston and not, as rumoured, stop in the London suburbs to save money.
But he announced nothing positive, dashing any hopes of significant tax cuts in the Budget, just over six weeks away.
There are two areas where he was spot on. One is his point about unwarranted gloom. There is a long tradition in Britain of it being thought clever to do down the country’s achievements and performance. Those of us who remember the 1970s and 1980s will recall the fashionable notion that the country faced not only relative decline but absolute decline.
Go back further and there was the famous essay by George Orwell, England Your England, in which he wrote: ‘England is perhaps the only great country whose intellectuals are ashamed of their own nationality… and that it is a duty to snigger at every English institution.’ That was in 1941, when the outlook really did look rough.
The other sensible point is that the country is wasting a lot of talent. Roughly one fifth of people of working age are economically inactive. Excluding students, this is 6.6 million people.
Of course, there are many people who cannot take up jobs, but 1.4 million of those adults do want to get back into work and if they were to do so, that would transform the labour market. The latest figures show there are 1.16 million unfilled vacancies. Hunt said this was ‘an enormous and shocking waste of talent and potential’ and he is right. So what’s to be done?
There is huge political pressure not to push on with the tax increases previously announced and it looks as though the deficit for this financial year will turn out a bit better than the Office for Budget Responsibility projected.
That is mainly because support for energy costs will be lower than feared. But the deficit will still be huge, perhaps £160 billion instead of the OBR’s estimate of £177 billion, and after the market ructions of last autumn, Jeremy Hunt has to be credible. I think there will be room for significant tax cuts, or rather a reversal of the planned tax increases, but that will have to wait until 2024.
Meanwhile, there are things he can do. Here are my top five.
First, he needs to free up the labour market. It is no good saying that talent is being wasted and doing nothing about it. The obvious thing would be to have a National Insurance holiday for anyone out of work coming back into employment. That could run for a year and would apply to anyone over the age of 55.
Next, he should encourage the self-employed. You cannot tell people who have decided or been forced to shut their business to reopen. So a sensible policy would be to look at all the burdens on smaller businesses and ask what might encourage them to grow.
Meanwhile, there is a quick fix: increase the VAT threshold from £85,000 to £100,000. There is evidence that some businesses keep their turnover down to avoid registering. Given what has happened to inflation, that is nuts.
Third, tax simplification. The Office for Tax Simplification was founded in 2010 and its closure was announced by Kwasi Kwarteng during his brief Chancellorship last September. All right, let’s not have a separate body to simplify taxes, but instead please let’s just do it.
Four, public spending. The Government’s performance has been at best uneven and at worst catastrophic. This is not a call for slash and burn. It is for the Government to remember the words of William Gladstone, Chancellor in the 1850s and 1860s before he became PM.
He was famous for his view that public finance should be on the principle of ‘saving candle ends’. Pay huge attention to the detail of public spending, for that leaves scope for areas where government really does need to spend money.
Finally, it is all right saying there is a Brexit dividend and in the long run there will be strategic advantages from focusing on the rest of the world rather than Europe.
But we need to be cleverer at identifying and exploiting those advantages. Again it is attention to detail. We could do better, so much better.
Hunt is right to dismiss the gloom about the economy.
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