Tax cuts won’t cut it; the new Tory leader must bring about innovation
As I write, every candidate vying to be the next Conservative Party leader – with the exception of Rishi Sunak – has promised major tax cuts. In many ways this is welcome, as taxes can deter investment and increase the cost of living.
During a time where families are struggling to make ends meet and economic growth is projected to be pretty much non-existent, we should favour helping people and growing the economy over an obsession with dealing with the national debt. Even if it means borrowing will have to increase. So cuts to national insurance contribution, indexing income tax bands to inflation, and lowering corporation tax are good news.
However, the complex issues facing our country will not be solved by tinkering with the tax system. The two biggest problems facing the next government are the cost of living crisis and the lack of economic growth. Tax cuts alone just won’t cut it. Instead, the future prime minister will have to address more deep seated structural issues, tackling the main obstacles to solving them.
Housing, for instance, is the biggest expenditure facing most people who spend huge amounts of their income on rent or mortgage repayments. Not only is this exacerbating the cost-of-living crisis, it is also causing immense damage to the economy. It stops the most productive people from moving to the most productive areas of the country. Young, talented individuals don’t take jobs for which they are a good match in terms of skills and experience, ending up instead in a role for which they are less suited for. Other people take the “right” job but spend a significant proportion of their day travelling to and from work. Given that productivity is the major driver of economic growth, we are all poorer as a result.
The reason housing is so unaffordable in this country is because supply has failed to keep up with demand. The UK’s restrictive planning system means that it is difficult for new homes to be built in the places where people want to live. The planning system is also gamed by too many “not in my backyard” groups of people – the so-called NIMBYs. They tend to always oppose new homes being built near them.
Our planning system has an impact on housing, but also on offices and science labs. Despite a rise in home working, many businesses need office space, and scientists and engineers need labs to work. Without them, research and development can’t take place, and our country risks losing its edge in the fields we excel at. Again, this has to do with the objections of NIMBYs.
Actually, one could argue that NIMBYism is the main obstacle to solving the cost-of-living crisis and low economic growth.
Another issue any runner for Conservative leadership should consider is transport – especially with the chaos expected in our airports and railways this summer. Again, transport is expensive and increases the cost of living for people. Its high price – and in many cases, its slowness and unreliability – means that again people are discouraged from accepting better jobs or working longer hours, which impacts productivity. Reforms – like building new railways or underground lines – are often met with opposition from local people. The much needed improvements either never happen or are delayed – so the cost to the taxpayer skyrockets.
And then there’s energy. As with housing and transport, high energy bills are causing misery to millions of people. Things look set to get even worse from the autumn. Because of these high prices, businesses have less money to spend on producing and improving their goods and services. And consumers have less disposable income to spend.
The most effective way to bring energy costs down while also maintaining our commitment to Net Zero is by increasing the supply of clean and renewable energy.
This will involve building more turbines, solar panels, and nuclear power plants. Plans to build these things are scuppered by NIMBYs. They raise spurious concerns about safety, the environment, or sometimes just because they don’t like a turbine’s look.
The candidates can talk all they like about tax cuts, and these are important. However, if we are serious about tackling the cost-of-living crisis and bringing about economic growth, then the next leader needs to be bold and take on the anachronistic attitudes pushing against change and innovation – because they are stalling our country.