Callum Price is Director of Communications at the Institute of Economic Affairs, and a former Government special adviser.
Last week’s budget was lamentable for many reasons.
Hiking the tax burden to the highest level ever, further increasing welfare spending on the backs of the working people that were supposed to be protected, refusing to make any attempt to tackle the looming problem of the state’s longer-term liabilities, failing to make any pro-growth changes to the tax system. The list is not short.
Overall, the government has entirely thrown in the towel on its ambition to deliver economic growth.
All of that is already well-trodden ground, on this website and elsewhere. A more interesting question now, for the Conservatives and all opposition parties, is what can be learned from it?
Firstly, what did the Government actually get right? Budgets are big, long, detailed things by their very nature. There are some successes buried there, if we look hard enough.
The most promising development has only been properly confirmed after the budget, but it’s close enough to lump in with it.
The decision of the government to back all of the recommendations of John Fingleton’s Nuclear Regulatory Review in full will mean that Britain is taking the steps it needs to fix its nuclear industry. The ability for excessive regulation and a process-first approach to get in the way of key infrastructure will be curbed, and the result will have a serious impact on our energy prices and, in turn, growth rates.
The Government should be commended both for this and for pledging to take the same approach across its industrial strategy. Any party that is remotely interested in fixing our growth problem and addressing all of the other problems it underpins, from stalled living standards to our fiscal difficulties, must follow suit. This is the sort of approach that should have been taken more boldly when the Conservatives were in power, and should form the basis of their approach to regulation from here on out.
Elsewhere in the budget itself were other small but not insignificant wins. William Hague has highlighted the increased budget for UK Research and Innovation which is one of the ways government spending could actually have an outsized impact on technological innovation, and the growth that can follow.
Scrapping the plans to hike landfill tax to a level that would destroy any remaining hope of hitting housebuilding targets is sensible, if obvious, too. It pays to listen when intelligent people point out your plans will have severe unintended consequences.
And we should not take for granted the growing of the Chancellor’s fiscal headroom, a welcome dose of fiscal conservatism even if she got there the wrong way.
However, the best news from the budget was arguably in what it didn’t do, more than what it did. At the top of that list is the lack of a full-fat wealth tax; the popular measure growing traction by the day across the left as the illusory solution to all our fiscal problems. The arguments against a full-on wealth tax are clear – it wouldn’t raise anywhere near the money its proponents suggest, and the negative effects, mainly of capital flight, would far outweigh any positives. There’s a reason so many countries that have tried something similar have reversed course.
It should go without saying that any centre-right opposition party would do well to avoid a wealth tax too, but the real lesson to learn here is that you can and should avoid populist solutions that would get easy headlines but do more harm than good. The Treasury did well to pour cold water on the idea of a full wealth tax throughout the many months of budget speculation (no doubt to prevent that capital flight kicking in pre-emptively), instead offering their own solutions firmly but clearly, and frequently.
Obviously, they did raise taxes on wealth in other ways that will have adverse effects, but by doing so they managed to avoid something far worse. That is not to say any government should look to tax wealth sneakily, quite the opposite, but it does show that just because your political camp has a bright idea that would go down well with voters, it does not mean it’s a good idea, or that it can’t be avoided.
However, for all of the attempt to find the positives, the biggest lesson for the Conservatives and any other opposition party from last week’s budget is a negative one. It was a lesson in what not to do.
The problems that Britain and its state face have been laid bare. We are quickly running out of road on the old way of doing things, of scrambling around to find the money to cover a bloated welfare and pensions bills, of loading more and more on top of a population who are already overburdened by a system in which the rates are two high and the structure is broken, disincentivizing investment and work at all the wrong times, and undermining growth.
It was a muddling-on budget, at exactly the time we need someone to stand up and shout stop. Someone to tell the truth – that the system is broken and without serious reform the social contract will break down entirely. This isn’t a problem that can be fixed in one budget, but last week’s events were illustrative of this government’s head-in-the-sand approach: keep the backbenchers happy and keep trucking on. It only takes a quick glance at the polls to see that this isn’t working with the public either. To the party willing to grasp this nettle will go the victory and the spoils.
