Britain’s plan for economic recovery should shoot for the moon with a radical rethink
China was ground zero for the pandemic, but the nation also saw a huge profit from the crisis, with an unprecedented eight per cent growth in GDP as other countries’ economies tumbled.
While many continue to ring the toll for Britain’s economic growth, there is, contrary to popular belief, the potential to shoot for the moon when it comes to Covid recovery. The successful vaccination programme, largely a triumph of the private sector, puts Britain in pole position on the world starting grid of economic recovery.
Unlike during the financial crisis, there is no shortage of funds chasing investment opportunities. In fact the Bank of England’s quantitative easing programme has led to unprecedented amounts of money sloshing around and has bolstered asset values.
While the pandemic has caused the government debt-to-GDP ratio to balloon to post-war proportions, assets remain intact and even buoyant. Spending, meanwhile, was put on hold, but it was not exhausted. If Boris Johnson and Rishi Sunak take the right tack, Britain could boom with a potential five per cent growth this year and eight per cent in 2022.
Today, I wrote to the Prime Minister outlining the formulae for a successful recovery designed by the Independent Business Network of family owned and operated businesses. It covers tax cuts, investment and a thorough review of lockdown policy. Coupled with deregulation and access to long-term investment capital, this would see Britain with around a 50 per cent debt-to-GDP ratio by the mid-2030s, followed by a sustainable 3 per cent plus a year. This is equivalent to world averages and would reverse decades of economic decline. Unlike the EU, the UK can swim against the tide of global economic development.
An approach does run the risk of inflation by the end of 2023, which would necessitate higher interest rates. It would also require the Chancellor to reverse any plans for higher taxes.
Instead, business rates should be frozen for at least another year, corporation tax cut to 10 per cent and eliminated before the next election, entirely contrary to the current policy of increasing corporation tax.
These supply side measures would be supported by consumption stimulus, freezing VAT at current levels, eliminating the highest rate of income tax, cutting the second higher rate to 30 per cent and cutting the lower rate by 5 per cent.
Not only would this package boost growth mightily, it would also lead to a significantly improved tax take, ultimately self-funding. It will make an enormous contribution to rebalancing the economy towards the regions, much more than shipping Radio 4 presenters to studios in Salford, posting some Treasury mandarins to Darlington, or indeed the enormously costly white elephant known as HS2.
The coming months will require a truly radical approach to the economy, appropriate to extraordinary times.
It will require a government which believes in free markets and free trade and in taking the opportunities our newly won post-Brexit freedoms allow. It will require policy makers to throw off the shackles of conventional wisdom and escape Whitehall group think.
In 2021 the country is ahead of the curve and has a unique potential to reset and recalibrate. It will be the measure of Boris Johnson’s government and will likely determine the outcome of the next election.