Dan Watkins is an entrepreneur and Kent County Councillor.
Underlying the daily commentary of market movements and political posturing, Britain has a chronic problem. That being economic growth, or rather, a lack of it.
And while Labour has soundbites and policies-a-plenty in the name of expanding the economy, you only have to revisit a bit of basic economic theory to see that these don’t actually amount to a plan for boosting the country’s GDP and fixing its finances. Quite the opposite, in fact.
Fundamentally, it is businesses which drive economic growth and fund public spending, with the taxes they and their staff pay being the money which feeds the Government machine. QED, if in the long run you are going to spend more on public services, you need a larger business sector to generate more tax revenues to support that.
So a plan for growth must enable the wealth-creating part of the economy to expand by allowing businesses to produce their goods and services at a lower unit cost, such that they can generate more output at the same total cost, or the same output but at a lower cost (with the additional margin being invested into expansion elsewhere). Put another way, a plan for growth is a plan for lower costs and enhanced productivity.
As someone who has created several companies and hundreds of jobs in my time, I know that there are only 3 ways in which the Government can help business owners cut cost and thus expand their operation:
- Cut taxes: this reduces the total cost of production
- Reduce regulations: this allows firms to operate with less back-office costs (and in the case of an innovative start-up, to even offer the product in the first place)
- Improve infrastructure: this cuts operational costs, making business more productive.
None of this is rocket science, but clearly Starmer and Reeves don’t get it, because they have raised taxes (e.g. employer’s national insurance) and soon will be increasing regulations (through their Employment Rights Bill). Furthermore, the extra tax is being spent not on infrastructure to help business be more productive, but on public sector salaries.
And when you hear Raynor and Co stating that greater employment protections will boost the economy by encouraging more spending, it is economic bunkum. These measures will increase the cost of producing goods and thus decrease growth. So while they may meet Labour’s agenda to redistribute income, they will do so with a ‘smaller cake’ to carve up.
If I were being generous, I would point to changes to planning rules as one area that the Government’s actions could boost the nation’s infrastructure. But even here, the growth opportunity is being lost by adding lots of new obligations for construction firms to meet, and indeed, these businesses will be caught in the same tax rises and regulatory burdens affecting the whole economy, reducing their capacity to build the consented infrastructure. You’d have to build a lot of Heathrows to overcome the £40 billion of taxes per year which Labour have just dumped on our wealth-creating sector.
What then of the future – will Labour change course as their economic problems inevitably mount? I doubt it very much, because it’s in the DNA of parties of the left to increase regulation, since the solution to everything is ‘more Government’. Similarly, can we imagine them doing a full U-turn and cutting business taxes? That’s also unlikely, and as such a slow, sclerotic death awaits this Labour administration as the private sector stagnates and reduces the funds available for public spending.
At this stage, I feel I have to appease my inner entrepreneur by finishing on a more optimistic note. I am hopeful that Kemi and her team will use the next 4 years to build a coherent programme of deregulation, tax cuts and infrastructure investment to finally get UK plc back onto the path of growth.
And to take that one step further, I would suggest that given she will be inheriting a debt-laden, low-growth country in hock to its international creditors, the first step is to cut red tape. This will spur the economy without generating an additional budget deficit, and we can then use the proceeds of that growth to cut tax and invest in infrastructure, doubling down on the growth we so desperately need.
