Time to make a decision: Chancellor Jeremy Hunt
What we need is competence, not ideology. It has been a depressing week for the Government and, more importantly, for the rest of us.
There were those gross domestic product (GDP) figures that showed the country had entered a recession in the second half of last year. They will almost certainly be revised upwards, because they do not square with the strength of the labor market and some other indicators. But there is no doubt that growth has been disappointingly slow and, while real incomes and retail activity are rising again, we have a right to feel gutted.
It is no consolation that Japan is doing even worse, falling behind Germany to become the world’s fourth-largest economy. Germany, by the way, is also in recession and looks set to continue contracting this year.
So what should be done? Jeremy Hunt will have the opportunity to revive his budget on March 6, but it’s hard to get excited about it. We will know more about the room for maneuver he has for tax cuts on Wednesday, when we have the public finance figures for January. That’s the big tax collection month, as anyone who has struggled to get their tax return and payment by the 31st will know. Tax revenues have increased (another reason I don’t think we were in a recession), so which, if they have continued to do so and there has been discipline in public spending, there should be more room to reverse the tax increases it has brought.
That discipline must include finding ways to improve public sector productivity. The number of people employed in public administration is 26 percent higher than in 2016, but while it is difficult to measure their output, not many people would say that public services are better now than before the pandemic.
This is not to address public officials as a group, but simply to point out that there is a huge management problem that must be addressed decisively and decently.
The same applies to housing. We have to build more houses, and they have to be nicer and bigger. The size of new homes in the UK is about two-thirds that of France or Germany and less than half that of Canada, Australia and the United States. However, the population is increasing and more and more people are working from home.
The Center for Economic and Business Research says one of the most important ways to ensure that immigration helps the economy is to build enough housing for the growing population. Failure to do so could cost 3 percent of GDP.
What about tax cuts? Well, we learned one thing from that Truss episode. Whatever a government does on taxes, its overall plans must be credible to international financial markets.
If not, government debt yields will skyrocket. That not only undermines any boost the tax cut might have given, but can also, ahem, bring down the Government.
So the key issue in next month’s Budget is not the size of the tax cuts, which cannot be substantial. It’s not about whether spending plans can be trimmed to make things look a little better. The question is whether this Government can be smarter.
There are many small things that can be done that together would bring better results for the country and, who knows, maybe even revive this Government’s reputation for competence.
Many of them are familiar to us; in fact, they are so blindingly obvious that it is surprising that nothing has happened yet. They include reversing the decision to charge foreign visitors VAT on purchases here, a move that has almost certainly cost the government revenue, rather than generating it. That wasn’t brilliant.
There should be measures to encourage the savings of UK pensioners to be invested in British industry, rather than being stuffed into government bonds or channeled abroad.
I have changed my mind about an Isa designed for investing in the UK. It may seem artificial to grant a tax exemption exclusively to domestic investment, but there is a practical argument in favor. If more of our savings stay in the country, it will tend to increase investment here and therefore drive growth.
There are more controversial ideas, including ending the Inheritance Tax. Apart from being one of the most unpopular forms of taxation, in the long term it could generate more income rather than less because people would no longer emigrate to escape it.
This may seem like a detail, but details matter. The big message is that we need a Government that is competent. Simple as that.