The Chancellor’s Post-Pandemic Choices
This paper examines the UK’s historical record, and identifies the best-performing periods in the past 40 years under two criteria: rising real government revenue and rising labour productivity. It then reviews the economic policies which facilitated these ‘golden’ periods. As it turns out, the periods largely overlap, but are centred around 1993-2003.
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 achieve growth. In summary, in the best-performing period there was:
- A top rate of income tax of 40 per cent.
- Corporation Tax ranging from 33 per cent to 19 per cent, falling throughout the period.
- Highest rate of Stamp Duty on residential property rising from one per cent to four per cent.
- VAT rate of 17.5 per cent.
- Capital Gains Tax set at the same rate as income tax, but with Taper Relief (from 1998-99) reducing the rate on shares by up to 75 per cent (i.e. giving a top rate of 10 per cent).
The regulatory burden on all productive sectors was much lighter than in 2020. The best performing periods had much less financial regulation, much less labour market regulation, more targeted health and safety regulation, and much less energy sector regulation, with fewer subsidies.
Governments have choices. This government may not choose to adopt some or any of these successful policies. There will be good reasons for those decisions, but in the round, if the government in general, and HM Treasury in particular, is serious about pulling the UK out of the very serious financial and economic position it currently faces, then the evidence presented here should weigh heavily on their decision-making.