David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire at the 2019 general election.
The Conservative movement is getting restless about growth. Tory MPs and the right of centre media are increasingly concerned that the UK economy is, at best, flatlining, and believes that the Government should do something about it. What that something should be, we hear time and again, is to cut taxes.
There is a variant to this argument which is that the economy is a little stronger than was expected at the time of the Autumn Statement, which means that the public finances are a little stronger too. And this means that there is scope to cut taxes. One way or another, tax cuts is the answer.
These are arguments that are causing some frustration in both Number 10 and Number 11 Downing Street. “Defeating inflation is the best tax cut we can deliver”, says the Chancellor. “People are not idiots”, says the Prime Minister, optimistically.
They could be blunter. Last September, the pound collapsed, Government borrowing costs soared and the country became something of an international laughing stock after a mini-budget announced a series of unfunded tax cuts.
It was not an announcement that came out of thin air; it delivered exactly what a certain strand of Conservative had long been calling for, and was well received by the very newspapers that are bemoaning the current strategy. It is almost as if the events of the autumn of 2022 did not happen.
There is a further point which neither Rishi Sunak nor Jeremy Hunt could make about the public finances which does not require us to go back to the autumn. Consider what is happening now. Our public services face very great difficulties because they cannot get the staff. Private sector pay is running well ahead of public sector pay and we cannot retain and recruit the people we need to deliver adequate public services. We could address this but it would be expensive and we would have to raise – not cut – taxes to do so responsibly. The problem is not that we tax too much, but that we tax too little.
It is true to say that if the economy was growing faster we would see healthier tax receipts. It is also true to say that the tax increases that have been implemented are more growth-damaging than they needed to be. Corporation tax is a more damaging tax than most and, when it is necessary to compete for international investment, it is very unfortunate that we are becoming more reliant on it as a source of revenue.
But if we are not going to get extra revenue from Corporation Tax, it needs to come from somewhere else. For big sums of money, that means income tax, national insurance contributions or VAT. I am not hearing much enthusiasm for those options.
So if the Government is not going to switch from a less unpopular but more economically harmful tax to more unpopular but less economically damaging taxes, what else could it do to help growth? Again, Ministers might feel somewhat frustrated with their critics who, more often than not, will oppose such measures.
Here are a few other things to help growth and then imagine how some of the Government’s critics on the right would respond.
1. Increase immigration. The Office for Budget Responsibility’s last forecast was more optimistic than it might have been because it revised upwards its estimates of the number of migrants coming here. In broad terms, net migration with the EU is now zero but many more are coming in from elsewhere. But EU migrants have a higher propensity to be in work so if we really want to boost the economy we should consider making it easier for EU citizens to come here. Meanwhile, the Home Secretary is trying to reduce migration across the board.
2. Liberalise planning laws. The Government tried this under Boris Johnson and gave up under pressure from the backbenchers. Under Sunak, it has retreated even further with mandatory planning targets being dropped and local authorities in the Home Counties now producing less ambitious plans.
3. Pursue plans for developing the Oxford to Cambridge arc. We have two booming local economies based on two of the world’s leading universities. The opportunity to create an economic powerhouse focused on science and technology is immense if this area can be properly developed but this (a) would not count as “levelling up” and (b) would be unpopular with many MPs in the area. Like planning reform more generally, there is no sign of progress.
4. Improve access to European markets. Sorry, but Brexit is economically harmful and one of the detrimental consequences is that it is harder for our exporters to trade with the EU. Another is that it is harder for EU businesses to export to us, thus reducing the competitive pressures to improve our productivity. Rejoining the Customs Union and/or Single Market is obviously out of the question for this Government, unfortunately, but we could avoid making matters worse. A compromise on the Northern Ireland Protocol would certainly help.
5. Reduce business uncertainty. A deal on the Protocol is essential but it is also worth flagging the Retained EU Law Bill which means that for a large number of issues – such as employment rights, data protection, intellectual property, and consumer protection – businesses do not know what the law will be in eleven months’ time. Not helpful.
6. Spend public money on growth enhancing measures, like skills training. We can have a longer debate about what the Government could spend and how effective it might be. Not every idea will be a good one, but some will be. But it would still be more spending which would require even higher taxes.
This is not an exhaustive list but it does demonstrate that there are pro-growth measures out there – but that the biggest obstacles to this Government implementing them are from within the Conservative movement. Sunak, I suspect, is on the pro-growth side of the debate on most, if not all, of these issues but is not politically in a strong enough position to deliver many of them. Meanwhile, his critics bemoaning the lack of a bold growth strategy will often be the most vociferous opposing the policies that would, in fact, deliver growth. (There are, to be fair, honourable exceptions, such as Simon Clarke on planning.)
Again, Sunak and Hunt can say very little about all this. Instead, they have to manage expectations, making great play with the disappointing public finance numbers from December (which were really the consequence of one-off factors, and not as bad as presented) and the Office for Budget Responsibility’s first round assessment of growth prospects (which is not normally briefed).
The public finances are, however, genuinely tight and the political constraints real. It is true that there is no bold vision for delivering economic growth that is going to be implemented in the next 18 months but, given the circumstances, nor can there be. Keeping the show on the road is all we can hope for, but to the extent the fault lies with Sunak and Hunt, it is their refusal to take on their backbench and media critics, not their refusal to listen to them.
We want a growth strategy, say some on the right. Given what this would involve, it is not clear that they could handle a growth strategy.