There is a political storm raging but becalmed in the eye of the storm is the economy. A tale of two halves, this is a result of both global forces and self-inflicted woes. Before examining this juxtaposition of events, it is important to reflect on what is good.
Before the EU referendum in 2016, all of the institutions of the EU, UK. and international political and finance community – including the IMF, OECD, ECB, the Treasury, and the US President – said that voting to leave the EU would produce a tsunami of disasters of Biblical proportions.
None of these came to pass in reality, except perhaps the loss of value of Sterling. This of course has made the UK more internationally competitive. As an example, the then-Chancellor, George Osborne said it would cost half a million jobs, when in fact it led to an additional half a million jobs being created. The greatest impact has been in the reputations of the pundits who got it so wrong.
The U.K. economy has outperformed the EU and key EU member states on growth, inflation, and employment each year since 2016 until today. That includes 2020 and 2021 when we had left the EU. The coming year is forecast to be more challenging – forecast by those same institutions that were wrong in 2016.
Early indicators on PMIs suggest the jury is still out on relative performance for 2022/3. Certainly, while France has performed well so far, the economy of the underwriters of the EU’s financial system, Germany, is in crisis, and the ECB continues to print money in order to prop up the system. In particular, that means the bust banks of the too-big-to-fail: Italy. But the ECB is underwritten by Germany. Draw your own conclusions.
What has not been so good for the UK has been the absence of a credible economic policy. The assessment of economies has been muddied by Covid and by the war in the Ukraine. Nonetheless, the current gloom surrounding the UK is largely self-inflicted. The Treasury appears to have decided what is best and their decision was essentially what is best for themselves: more tax, more rules, more government. Whatever the question, more tax, more rules, and more government is never the answer.
This has been compounded by a No 10 obsession with a flawed Net Zero policy. It is no exaggeration to say that the UK could have avoided much of the cost of living crisis so far had we prepared properly for the journey to Net Zero. The Government has chosen the most expensive route and left us with energy security in tatters, gifting power to Russia and other unsavoury regimes.
The UK constitutes is less than 3 percent of global GDP. It therefore could have achieved 100 percent Net Zero emissions and not moved the dial on climate change, but simultaneously destroying the prosperity of our people and the economy.
The vast majority of our energy remains based on gas, but the government have neglected to allow us to produce it. We thus rely on imports, despite there being beneath our feet vast reserves of British natural shale gas. Aside from this, the only credible, ultimate solution to a Net Zero future is nuclear power. And yet we have allowed our nuclear industry to atrophy.
The “green” energy industry is a fallacy. Wind is unreliable, requiring the burial of non-recyclable turbine blades while electric vehicles lack infrastructure and will require the disposal of millions of toxic batteries. Meanwhile, the Government have largely ignored and failed to pursue hydrogen fuel for vehicles.
Contrary to the government’s apologists, all of the recent energy price increases were baked in before the Ukraine conflict and are attributable to government policy. This is not just disingenuous, it is unforgivable economic mis-management.
Aside from this specific litany of economic mis-management, the Independent Business Network of family owned and/or run businesses, which are typical of 83 percent of UK businesses, are furious at the failure of government, in particular the Treasury, to capitalise on the opportunities for growth afforded by Brexit.
Instead of adding to an overweening Whitehall machine, the Government should be aiming for growth.
It is vital that key tax rates are cut for business in order to allow investment and boost tax receipts. Rather than increasing Corporation Tax, it should be cut from its current level and a signal given for further cuts until 15 percent is reached, with a view to withdrawing from the recent international, protectionist regime, and eliminating it altogether. This is a tax which is paid by British business and largely avoided by multi-nationals.
Fuel duty should be cut to alleviate the major driver of the cost living crisis and a competition review of the wholesale and retail petrol market, undertaken. Income tax should also be cut in order to support demand and send an important signal. The Bank of England should never again engage in QE.
These growth stimulators will lead eventually to higher tax receipts. It is expected that inflation will fall back and debt will be paid down over the long term post-Covid, as it was after major wars. Government borrowing is designated over long periods and short term interest rates will not impact on debt repayment for some time.
The domestic economy is seventy percent of GDP and our post-Brexit freedoms provide an opportunity for growth. A determined and ambitious programme of meaningful deregulation should be pursued.
Furthermore, unilateral action should be taken to reduce or remove external tariffs, where these are not necessary for strategic, security purposes, and particularly where the food and goods are not produced in the UK. Many tariffs are as much as 20 to 40 percent (at the wholesale) pre-VAT level and their removal would reduce the cost of living at a stroke, while providing much of the boost to the economy that would result from trade deals.
Tariffs are self-harm and their removal is a unilateral decision and would stimulate growth just as we found at the beginning of the industrial revolution.
The Government have so far pandered to vested interests and to the anti-Brexit, counter-revolutionaries in Parliament. If Britain is to fulfil its potential, the Government now need to be brave and embrace the exciting and stimulating forces of creative destruction. It is only through this process of market-driven innovation that we will prosper as an independent nation. It is only the private sector that can do this and government must temper its instinct to want to control everything. There will be winners and losers, but overall we will all win.
Whatever the politicians think of stormy weather, when it comes to the economy, the storm is good.