James Lawson is the Chairman of the Adam Smith Institute.
The word of this election is, at best, apathy. When asked to describe how they felt about the election campaign, voters told More in Common it was ‘negative,’ ‘boring,’ ‘predictable’ and ‘uninspired.’ The word cloud this created should send a pretty stark message to those seeking election.
It’s little wonder we feel so frustrated: our economy is stagnant, and politicians are not engaging with the root issues. According to ASI analysis of World Bank data the UK’s GDP per capita, in real terms, only rose by 1.3 per cent in total over the 17 years between 2007 and 2024. To put this into perspective, in the seventeen years preceding 2007, it grew by 141 per cent.
Meanwhile, the cost of life’s essentials, in particular housing and energy, are eating into an increasing proportion of salaries, as does the record-high tax burden needed to fund our bloated public sector.
Meanwhile, politics today feels more consumed with tinkering at the margins, rather than actually addressing the structural problems facing the country.
This is partly because we seem to have developed a particular obsession with polling. A slavish devotion to ratings does not translate to real popularity, as it ignores the salience of policies or their long term impact. It can lead to vacuous policies which distract the government from the fundamental problems at hand, or even make the problem they purport to fix even worse.
A particularly pertinent example is rent controls. A recent YouGov survey found that 69 per cent are supportive of setting caps on what landlords can charge, or freezing rents, despite an enormous body of evidence, and numerous practical examples across Europe, showing that this only makes the rental crisis worse.
Support for rent controls are indicative of a wider theme: the destruction of the price mechanism and, more broadly, the increasing encroachment into our ever less free economy.
Instead, policymakers must focus on the core underlying causes of our economic malaise; corporate cronyism (government support for special interests), policies which are hindering growth, our vetocracy on any development, and wider risk aversion. More specifically, any manifesto pledges should be directly targeted at both reducing costs for individuals, and at tackling these blockers to growth.
Any manifesto which does not include substantive promises on planning reform is not serious about improving either the material or social welfare of voters.
A seminal piece on the subject, The Housing Theory of Everything, outlined how a scarcity of housing is responsible for a whole range of issues, including low productivity growth, wealth inequality, declining birth rates, and obesity. Vague nods to the importance of building more homes won’t cut it.
Practical and concrete solutions could include releasing land within a ten-minute walk of a railway station for development, and building on metropolitan green belt land and sharing the profits with local government and residents. We should also look to scrap, or at least reduce, stamp duty which penalises people from moving house and gums up the market; we found that it was four times more harmful to economic efficiency than income tax.
This is not the only economically distortive tax which should be consigned to the dustbin of history.
Aside from the immorality of creating another burden on a family grieving the death of a loved one, inheritance tax adds substantial complications to our tax code, encourages individuals to waste money on estate planning and invest in less productive areas of our economy, and is often directly responsible for the closure of small, family-run businesses. Scrapping it could form part of a truly bold offer on tax.
Corporation tax is in need of further reform too. While making full expensing permanent was a great win in the last budget, there is room to go even further.
For example, the Treasury could remove the cap on Net Operating Loss carryforwards, a sort of startup tax. Countries like Norway, Sweden, Ireland, Estonia, and Ukraine have no cap, helping businesses who make a loss in their early years but make larger profits later and boosting growth long term.
The electorate is also feeling the pinch on other essential items, in particular energy and childcare. The former is, in part, due to our overzealous regulations of nuclear energy, which should make up a sizable proportion of the UK’s future energy production. But approvals for the construction of new nuclear power reactors are (typically for our planning system) sclerotic.
Rather than outlining another ‘picking winners’ approach, a manifesto pledge to speed up nuclear development could include introducing a mutual recognition of standards for Advanced Modular Reactors, meaning that technologies which are already used safely in countries such as France can be used in the UK, and encouraging developers to deliver full fleets of reactors, rather than just one at a time.
In the immediate term, fracking and energy interconnectors would provide the fastest boost to energy supplies.
Meanwhile, the cost of childcare in the UK is the joint highest in the OECD. This is unsurprisingly pushing many parents out of work, to the detriment to both their earning prospects and the wider economy. It also discourages people from having any or as many kids, depressing our fertility rates further.
This is hardly because we are not spending enough money on the problem: the government is now spending £4 billion a year to subsidise childcare. Rather than continuing to pursue dysfunctional demand-side schemes, efforts should instead be focused on boosting supply and addressing the root issues which have been pushing up prices in the first place.
Our staff=to-child ratio, is still one of the most stringent in Europe, should be relaxed, and informal childcare arrangements should be eased in order to provide greater choice for parents.
Finally, our public bodies, including the Bank of England, the OBR and the CMA, which are directly responsible for our economic orthodoxy, need to be held to account. The Bank spectacularly missed its inflation target, without consequence. It should be easier to fire the leaders of quangos, while many bodies should be reconsidered altogether.
Those holding the pen on manifestos should remember that the policies they propose shouldn’t merely be for the purpose of shoring up their core vote. If their plan for government actually delivers prosperity, they will find themselves rewarded in the long-term, just as Margaret Thatcher was granted three successive electoral victories – despite fierce opposition to parts of her programme.
