Over recent weeks I have many times been asked by corporate investors, both British and foreign, how bad things could get for the UK economy. You will naturally suppose that it is Brexit that troubles them. Yet, on the whole, they are not so much worried about Brexit as about a Corbyn-led Labour government. I think they are right. But this judgment deserves serious reflection. And today, with the Conservative Party conference in full swing in Birmingham, we should also ask how good things could get.
I do not need to explain that I am a Brexit supporter, nor that I think that Mrs May’s Chequers deal is a real turkey. As I have argued before, I support a Canada-plus deal, or leaving the EU without a deal and trading with it on WTO terms, pending the possible negotiation of a free-trade agreement (FTA) at a later date, without the ticking clock. But I should say that even a botched or ersatz Brexit, like the Chequers proposal, would not make me seriously gloomy about the prospects for the UK – unless that was combined with a Corbyn-led government. (Mind you, adoption of Chequers could well lead to Corbyn.)
After last week’s Labour conference, it should be pretty clear why that prospect is alarming. It is not that Labour governments are bound to be economically incompetent. Some have achieved good things. Usually, in what they do, as opposed to what they say, they are not that different from the Conservative alternative. In countries like the UK, political change usually makes hardly any economic difference.
The most important factor determining economic policies is the interaction between the problems thrown up by the economy and the prevailing ideology of the governing elites, which tends to be accepted by all major parties. But there are exceptions. This is one of them. Given Labour’s recent pronouncements, if it came to power, we could look forward to higher corporation tax, higher personal taxes, particularly at the top end, higher public expenditure, increased public borrowing, the rescinding of legislation restricting the activities of trade unions, controls on prices, the partial confiscation from their rightful owners of wealth invested in shares, nationalisation of large parts of the economy and exchange controls. If that lot doesn’t scare you then perhaps you deserve to experience it.
If even a botched Brexit would not bring Britain to its knees – unless there is a Labour government – then what is the economic case for a real Brexit? It is about opportunities. This message still does not come through amid all the gloom and doom emanating from ministers, senior civil servants and many leaders of our large companies, who are obsessed with defending the status quo. They are all focused on damage limitation. They need to raise their sights.
Yet Brexit is not a magic wand. In order to make the most of it, government must adopt the right policies. The opportunities centre on the ability to negotiate FTAs with the rest of the world, which is, of course, growing faster than the EU, and the chance to fashion a regulatory regime tailored to Britain’s interests. Over and above this, although this course is not expressly forbidden by EU membership, we would also be free, and encouraged by our new circumstances, to embark upon a programme of lower taxes.
This third element still has not received enough attention. Recently it seems to have dawned on Mrs May that after our withdrawal from the EU, low corporate taxes should be a key element in how Britain presents itself to the world. But why does she stop at corporate taxes? The assumption seems to be that individuals will tamely accept whatever extra taxes are imposed upon them. This is an unrealistic assumption. Quite apart from the distortions to behaviour and the disincentives to work that higher taxes bring, people are increasingly mobile internationally, particularly at the top end of the income range.
If the economy is growing, the Government can simultaneously cut taxes, increase spending and reduce the budget deficit. After a clean Brexit, with the country set on a path of deregulation and lower taxes, we could reasonably expect our rate of economic growth to increase.
Even with this boost to growth, however, to be able to embark safely on a programme of tax reductions the Government has to do two things: exercise continued restraint over public spending and accept a slower reduction of government borrowing. This would not be fiscally irresponsible. Quite the reverse. At this conference and in the forthcoming Budget, this is the course that the Chancellor should chart. But on Philip Hammond’s past form, I wouldn’t hold your breath.
Yet fiscal policy isn’t everything. Once Brexit is achieved, a Conservative government should focus on making more use of markets in three key areas where failings owe a great deal to ineffective state management: health, education and land use.
Simultaneously, it needs to address the failings of markets, as in the poor service provided by many of our privatised utilities, especially the railways. Jeremy Corbyn is right to highlight this, although his proposed remedies are as mad as the ills that they are supposed to address are outrageous. Anyone who believes that the solution to the problems of our railways is to bring back British Rail is either too young to have experienced its unique joys or is suffering from acute memory loss. But this negative message is not enough. The Government also needs a serious plan for fixing these problems.
In Birmingham this week, there will doubtless be a great deal of angst about Brexit and alarm about the prospect of a Corbyn government. Understandably. The full implementation of Corbyn’s policies would spell not decline but catastrophe. The way to head this off is to emphasise the opportunities facing Britain after a proper Brexit, and to give a Conservative vision of how to realise them.
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