“And enterprises of great pith and moment, with this regard, their currents turn awry, and lose the name of action.”
Britain needs enterprises of great pith and moment, but instead gets a spending statement from Rachel Reeves. She seems to have no understanding of the deep-seated problems facing this country. All she offers is more of the same; which has already failed.
The Chancellor's statement on Wednesday promised more money for favoured projects, although less than the spun headlines have suggested, but no reforms or suggestion of how to revive the long-term fortunes of the economy.
£29 billion extra is promised for the NHS or “our NHS” as it is so tweely called. Its annual budget soars above £200 billion, but since 2019, productivity has fallen by 18%. This means that £36 billion is being wasted to provide the same level of service as was achieved six years ago.
Giving the NHS more money without reform is pointless. It will not reduce the waiting lists and will not solve the problems of demand exceeding supply, because of a lack of incentives to improve productivity. The alcoholic, when given another drink, does not immediately become sober.
Since the 1960s, when it was 3.5%, economic growth in the UK has been slower in every decade than the one before. It was 2.7% in the 1970s, 2.6% in the 1980s, 2.2% in the 1990s, 1.9% in the 2000s, and 1.8% in the 2010s. This indicates structural problems in the economy which are not solved by switching spending from the Home Office to the NHS. It requires more radical and long-term thinking than Rachel Reeves is capable of providing.
There is, first of all, a demographic problem, not enough children are being born, so the proportion of those receiving retirement benefits to those working rises, and will continue to rise. Immigration has been seen as a way to mitigate this, but has had societal costs that have harmed the poor, and are now intolerable to the majority of the population. Indeed, cheap labour from abroad has delayed the implementation of one of the ways to deal with a smaller workforce, which is through increased productivity, via mechanisation and increased use of robots.
The demographic crisis coincides with moral changes that have reduced the chances of successful family life. Marriage may be ended with ‘no fault’ divorces, but all the evidence suggests that children do best when brought up in a stable home.
At the same time, the number of children lost to abortion has risen to 250,000 a year. Some of the reason for this horrific number of deaths is economic. People cannot afford to have children because they are so heavily taxed. The two-child limit for benefits was brought in because it was unfair on those who were working and could not afford children, and who were paying for benefits for those who were not working.
The tax and benefits system needs to be reformed to encourage more people to have children, and the transferability of tax allowances would help mothers or fathers to stay at home to look after their children if they wanted to. Currently, the state subsidises childcare by anyone other than a parent, which is bizarre.
Attempting to tackle the demographic problem at the beginning of life would be a start, although it may be easier to assist with the later period of people's lives. The retirement age has risen to 67 but needs to rise further. People who may live for 20 or 30 years after retirement are needed in the workforce. Many people in their 70s and now even 80s are quite fit enough to carry out some employment and this should be encouraged, with the formal retirement age raised to 70.
A larger indigenous workforce would help the economy to grow in absolute terms, but the aim must be to boost GDP per capita. Each one of us needs to be better off. This needs supply-side reforms, otherwise known as deregulation.
The planning system, under the guidance of the 1947 Town and Country Planning Act, is the dead hand of the state, dampening down growth. People need houses and businesses need premises. A system that allows them to get these necessities in a timely way is essential. Bat surveys, nutrient neutrality, commuting badgers and newts cannot be allowed to stop, or more importantly delay development and increase the costs.
Green spaces, and especially the green belt, need protection, but a more market-led system is needed, which would allow people to live in homes that they want, rather than those that are thought to be good for them.
Employment regulation also needs to be simplified, the Angela Rayner proposals will make it harder for businesses to operate and will increase unemployment. The balance between the worker and the employer is not what it was in the 19th century. Most businesses need to keep and cherish their staff. Contract law could easily replace government-mandated regulations, at least for smaller businesses, although the balance of power in larger companies may require a little state protection.
Business regulations need simplifying too. The Retained EU Law Bill, which was intended to repeal all EU law, ought to be revisited. One of the real Brexit benefits is that we can diverge from EU laws. In AI, it is already apparent that our approach is better than that of the EU and is encouraging businesses, but it is not enough just to diverge. City regulations, such as MiFID and the AIFMD, need to be scythed through, perhaps with Milei's chainsaw.
At least since the 1990s, governments have recklessly put more burdens on businesses, which has hampered economic growth. Each individual regulation has a good argument for it, and a lobby group that favours it. Nonetheless, a brave government must deregulate and it must attack the tax system too.
The tax code is unwieldy and kills economic activity. The VAT threshold of £90,000, effectively set by the European Union, stops small businesses from taking extra orders. It needs to be increased dramatically. IR35 discourages entrepreneurs and assumes all people want, in principle, to fiddle their taxes, which is not true. This regulation ought to go.
Corporation tax is too high and it is worth remembering that revenue rose when George Osborne wisely lowered it, not only in cash terms but as a percentage of GDP too. Business rates need reform as they can easily fall on the wrong businesses and have had a devastating effect on the high streets.
Personal taxation also needs reform to remove the excessive marginal rates that hit people at £50,000 and £100,000 that simply discourage people from working a bit harder to get a pay rise. Capital taxation needs changing so that capital is allocated in the most economically efficient way, which is necessary for economic growth. Hence, death duties need to be abolished altogether. The recent reform by Rachel Reeves has merely highlighted this necessity.
The taxation system needs to be looked at in the round, not bit by bit, to see what effect it would have dynamically. Too many models are static, so do not see the effect on economic growth or behaviour changes which may come from alterations in rates or systems. However, unfunded tax cuts are not affordable, so expenditure needs to be controlled as well.
The welfare budget must be a prime target for reduction. It disincentivises work and encourages claims of illness. The disability budget is heading towards £100 billion, and payments rise much faster than people are shown to be unwell. The withdrawal rate of benefits traps people on them, and this both costs the taxpayer money, and also reduces the productive output of the economy because potential workers are inactive.
I have written several times about the need for cheap energy, which is another essential component of rebooting the economy. Spending billions on nuclear plants that take decades to build will not ensure cheap energy and will leave people cold and poor if the current obsession with wind continues.
Reeves just seems to think that business as normal is good enough. It is not. This has been underlined by the latest economic figures for April, which show the economy has shrunk, and the country is in dire economic straits. 8% of spending now goes on debt interest and that is rising, the national debt is nearly 100%.
As a Labour Chief Secretary once joked, there is no money left. There is no ability to gain more by taxation, as the nation is already facing its highest tax burden in history. Growth is the only way out, and while Rachel Reeves may cluck like an old hen about the improvements she has made to be able to afford to reinstate some of the winter fuel payments, it is not enough.
It is nonsense for her to say such things and try to hide the genuine, deep-seated problems. We are in real trouble, and Labour offers no solutions.
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