– Less than a fortnight after announcing his “Winter Economy Plan” Chancellor Rishi Sunak will today deliver his speech at Conservative Party Conference;
– Conditions for growth are not a mystery – we have seen them in the UK in the recent past;
– The period from 1993-2003 was one of high productivity growth, national income growth and growth in government revenues, especially compared with recent times;
– The policies that spawned these successful periods have a proven track record and hence can form a practical basis for policies that could be pursued now to boost our economic recovery;
– Over 30 signatories – made up of economists, academics, businesspeople and politicians – have backed an open letter to the Chancellor of the Exchequer spotlighting these policies;
– They were, in summary:
- A top rate of income tax of 40%;
- Corporation tax ranging from 33% to 19%, falling throughout the period;
- Highest rate of Stamp Duty on residential property of no more than 4%;
- VAT rate of 17.5%;
- Capital Gains Tax rate at the same as income tax rate, but Taper Relief (from 1998-99) reducing the rate on shares by up to 75% (i.e. giving a top rate of 10%);
- A light regulatory burden on all productive sectors: less financial regulation, less labour market regulation, more targeted health and safety regulation, less energy sector regulation.
In a new briefing paper, Neil Record, Chairman of the Institute of Economic Affairs, uses historical data and analysis to identify those policies that could maximise government revenue growth as we emerge from the Coronavirus crisis.
Rather than speculate on approaches that HM Treasury could use to tackle the dual issues of highly-stressed public sector finances and a lack of labour productivity growth leading to stagnant real wages and living standards, the author concentrates on the past four decades and identifies the best 10 year periods within them.
The period from 1993-2003 was one of high productivity growth, national income growth and growth in government revenues, especially compared with recent times.“The Chancellor’s Post-Pandemic Choices” makes the case for an economic policy framework more aligned with that seen during that period.
It argues that, even in the good times, our tax system has been too complex, too distortionary, and not sufficiently investment-friendly. We need major tax simplification, and a shift in the burden of taxation from more distortionary to less distortionary taxes.
Further, we must unleash the animal spirits of the UK population by unburdening them from undue regulatory interference. Ultimately, clawing ourselves out of the Covid-induced downturn requires learning from best practice – not just from the UK’s recent past but from elsewhere across the globe.
Neil Record, Chairman of the Institute of Economic Affairs and author of “The Chancellor’s Post-Post-Pandemic Choices,” said:
“Economists have had a poor recent track record of forecasting. So rather than building yet another model of the economy to help guide advice to the Chancellor, I have looked back at periods of UK economic success and growth within the past 40 years. I have identified the best decades within that period, and analysed the taxation, fiscal and regulatory policies that helped create those successful periods. If decisions made now can recreate that success, then despite the terrible damage wrought on the economy by Covid-19, the future can be bright.”