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Features

Get it right, George!

We asked a select group to offer the Chancellor a single ‘big idea’ that would kick-start the UK economy

19 November 2011

2:00 PM

19 November 2011

2:00 PM

Arthur Laffer

Chairman, Laffer Associates
Cut the 50p tax

Reducing the burden which government places on the economy, through tax cuts, is the surest way to promote growth. I have never heard of a country that taxed itself into prosperity. Yet Britain last year raised the top rate of income tax from 40 per cent to 50 per cent. For more economic growth, and more tax revenue, this rate should be lowered immediately.

This paradox — lower rates, but higher yield — has been demonstrated time and time again, the world over. Between 1980 and 2007, the US cut tax rates on every form of income, the highest, the lowest and all those in the middle. The result was that the rich paid more, even if their tax levels were reduced. Let’s take the top 1 per cent of earners. Over this 27-year period, their contribution to the income tax collected in America doubled from 19.5 per cent to 40 per cent. The same dynamics applied in Britain: when the top rate of income tax was lowered to 40 per cent in 1988, the share of income tax collected from the richest 1 per cent rose from 14 per cent then to 27 per cent last year. Raising tax rates on the rich is about as bad an idea for the UK as I could imagine.

The government doesn’t need to do something. It needs to undo much of what it already has done. If you want poor people to do better, create jobs, not welfare — and to do this make taxes lower, not higher. ‘The best form of welfare,’ in the words of John F. Kennedy, ‘is still a good high-paying job.’

Louise Cooper

Senior financial analyst, BGC Partners
Plan not to plan

In its growth review last year, the government declared that its aim was ‘to achieve strong, sustainable and balanced growth that is more evenly shared across the country and between industries’. If this genuinely is the government’s economic policy, we’re in trouble. Such a prescription is impossible. The free market is chaotic. Highly entrepreneurial firms and people take ideas and give them a go. Does it matter that Silicon Valley’s growth is unbalanced and too technology-focused? Of course not. One of the reasons for its success is that all the businesses are located in one place, not ‘shared across the country’. You can see why such words help, politically. But economically, it’s nonsense. Government needn’t worry about creating growth in various industries. It need only create the right conditions for entrepreneurs and businesses, wherever they are based and whatever they do. Ireland kept its tax and regulations low throughout the crisis, and as a result is growing again — still one of the most business-friendly countries in the world. The government should keep cutting red tape until the same can be said about Britain.

Martin Vander Weyer

Business editor, The Spectator
Introduce a venture capital levy

It’s often said that a recession is a good time to start a business — if you can drum up the capital to do so. Britain has never been short of brilliant scientists, designers and
marketing folk but (unlike the US) has always been critically short of venture capital funds. It’s not the role of commercial banks to fill that hole. But if the 50p rate of tax on incomes above £150,000 is too politically sensitive for George Osborne to abolish altogether, why not replace it with a 10p ‘venture capital levy’ on high earners for the remainder of this parliament, while reducing the top tax rate back to 40p? The levy might produce a fund of £1-2 billion a year — to be divided into several sub-funds managed by competing professional investors. Start-ups and small-to-medium businesses in which the funds invest would also qualify for guarantees to help them obtain bank overdrafts. Thousands of ventures would win a
fighting chance, some would turn out to be winners, and the high-earners might actually like the idea of contributing to national regeneration by providing direct support for entrepreneurs.

Liz Truss

MP for South West Norfolk; Convenor, Free Enterprise group of Tory MPs
A ‘single click’ for new businesses

The real hassle for those who want to get on with selling ice creams or making computer games is applying for VAT, business rates and Pay As You Earn. This involves multiple applications and often delays with HMRC and councils. These could be amalgamated into a ‘single click’ application, which would unleash a new wave of ‘pop-up businesses’. Further developments could include industry specific permits, and reducing barriers to entry in uncompetitive sectors.

Businesses have to deal with ad-hoc payments made to staff when they are ill, have a baby or prepare for retirement. These schemes are taxpayer-funded but require a series of forms and up-front cash. The employer is little more than a postbox. Hiring employees would be more attractive if the government dealt directly with pensions, parental pay and sickness pay. It would cost the government no additional money; indeed it could allow systems to be made simpler. HMRC investigated the possibility of moving to a direct payment for maternity in 2005, with strong support from
small companies. The scheme was only turned down because of the complexity of income-related maternity pay, a problem that could be avoided by moving to a flat rate. The government could also take over the administration of auto-enrolment pensions for employees. As well as benefiting firms, this would make life easier for employees moving jobs.

This vastly simplified approach could be started with new pop-ups and gradually be extended to all businesses. Ultimately everything could be done through a single tax code with a hugely reduced administrative burden on employers. Government would have a greater incentive to simplify taxation and regulation, bearing the costs of its own policies.

Casey B. Mulligan

Economics professor, University of Chicago
Cut welfare back to 2006 levels 

[Alt-Text]


Masquerading as ‘stimulus’, government policy has made the recession worse, leading to more overall job losses than were necessary. Cutting government spending — removing the ‘stimulus’ — would actually help the job market recover. The government’s safety net has grown so large that it now restricts success. This safety net — the welfare system — could safely be put back to the levels of five years ago. As could the minimum wage. Also, stop obsessing about the amount of new loans made by banks. They’ll start lending money again when there are good loans to be made to good, creditworthy clients.

Dominic Raab

MP for Esher and Walton; Backbencher of 2011, Spectator Parliamentarian Awards
Make sacking easier

The venture capitalist Adrian Beecroft recently advised No. 10 to replace unfair dismissal with ‘no-fault dismissal’, to allow firms to replace underperforming staff with greater ease.

It was vigorously opposed by the unions and some Liberal Democrats. But can’t there be a compromise? One solution might be to introduce the option of ‘no-fault’ dismissal, but retain the right to claim unfair dismissal. The law should be changed to help employers defend unfair dismissal claims, by widening the concept of ‘fair dismissal’ to include inadequate performance. (At the moment, it’s just inherent inability or neglectful incompetence.) That would safeguard claims with merit, but shield firms from the costs of defending weak ones.

Terry Smith

CEO of Tullet Preborn
Tear up growth targets 

My suggestion for the Chancellor on economic growth is to ignore it. He can’t affect it and there is no point in worrying about something outside your control.

Governments, including Britain’s, are already beyond the extremes of taxing and borrowing to maintain state spending. The markets won’t let you do any more. Growth purchased by more borrowed money doesn’t help anyone. A growth target can, in fact, be dangerous if, to meet this target, a desperate government will try to produce fake growth via printed or borrowed money.

It’s time to admit that the ‘growth’ of the past two decades was an illusion. It was, to use a common expression, ‘mortgaging the future’ — we borrowed in order
to consume more. This was a formula for disaster. It cannot and should not be repeated. George Osborne would do better to spend his time changing the structure of the British economy in order to make it competitive again.

How to change that structure? Accept that individuals and businesses are more efficient at spending money, innovating and investing than the government. Or, put simply, cut taxes. And to finance these tax cuts, shrink state spending. This should, of course, be a goal in itself. The most useful thing government can do is get out of the way. Use the need to balance the books as a lever radically to reduce the size of the state, and its interference in our lives and business affairs. Repeal every piece of legislation passed since 1997 which has affected business in terms of regulation, ’ealth and safety, the environment, social responsibility and ‘rights’.

To save Britain, you can’t keep going a little slower in the wrong direction. You need to change direction, to rethink the purpose of government and the nature of prosperity.

Ruth Lea

Economic Adviser of Arbuthnot Banking Group
Make energy cheaper

Businesses risk being driven out of Britain by the cost of energy, and that’s something the government can correct. ‘Green energy’ policies already amount to a stealth tax of over 20 per cent for businesses (and over 15 per for households) on energy bills — and current energy policies could push this to 50 per cent. This is a recipe for more unemployment, as it damages competitiveness, especially for businesses like chemicals and steel. If production moves to China it could emit just as much carbon dioxide, if not more, so this policy doesn’t even help reduce global emissions.

Even if the Chancellor feels unable to drop his draconian carbon reduction targets, he should at least drop the unfeasible EU renewables targets, which drive the massive expansion of wind-generated electricity. Wind power is expensive, unreliable and, because of the need for conventional back-up, ineffective in cutting carbon emissions.

Allister Heath

Editor, City AM
Prune planning law

It takes far too long to get anything done in this country. It takes years to build a new office or supermarket and decades to build airports. All of this could be revolutionised at no cost to the exchequer, unleashing private sector investment. Planning rules need to be liberalised, making it easier to build or extend homes or commercial property. Decisions on major infrastructure projects should be pushed through centrally on an emergency timetable, with large payouts to buy out opponents (financed by developers).

Norman Tebbit

Former Conservative party chairman
Reduce fuel duty

George Osborne is severely limited in what he can do without risking a loss of confidence in the determination of the government to address the problems of the deficit and debt which he inherited in 2010. He should, however, look at the impact of fuel duty. While it is possible to argue that many motorists fail to bother to shop for cheap fuel and pay 6p or 7p a litre more than they need, there is a heavy impact on drivers on low incomes as well as on the CPI, with its knock-on effect on expenditure. He should call next door and tell the Prime Minister that the Cabinet must override the absurd posturings of Vince Cable. It is essential to reduce the risks for employers in taking on new employees by making it easier to reduce staff again if growth fails to increase. He should tell the Prime Minister that he is unwilling to allow  financial strategy to be imperilled by Lib Dem demands to veto government policy.

After that, any other tax relief should be concentrated on income tax on the lowest earners. That would help reduce the costs of Duncan Smith’s reforms as well as neutralise Labour’s squawks about his other measures.

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