Allister Heath

Day one: getting us back in business

Allister Heath drafts the letter George Osborne should send to his Treasury mandarin as soon as he assumes office

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Dear Treasury Permanent Secretary,

Good news: the nightmare is over. We both know that Gordon Brown is one of the greatest economic vandals ever to have resided in Downing Street. And to make Britain competitive again will require hard work. We can start immediately, and without the need for legislation. I’d like the following to be in place by the end of our first 100 days.

1) Please draw up plans for a two-year public sector pay freeze, and for a few billion pounds worth of immediate cuts. Rather than trimming spending across all departments, I’d like to axe entire programmes. These will include Sure Start, which would save £1.4 billion a year, and the NHS national programme for IT, saving £1.2 billion. The markets are watching us anxiously. We need to demonstrate intent. This will all be met by rage from the unions — but we may as well get on with these tense relations.

2) The Treasury has long used a strange way of calculating tax. Your ‘ready reckoners’ assume that if you raise, say, income tax by 1p in the pound then everyone will pay exactly that. In the real world, increases in tax decrease the incentive to work. Your failure to account for this gives the Treasury an unrealistic approach to taxation, making it hungrier for more. I’d like you to move to this real-world system of assessing tax: so-called dynamic tax scoring. It should reflect the way that taxation can alter incentives to work, save and invest; and show that high national debt and public spending crowds out private sector growth. Publish all of this new dynamic model’s assumptions online. From the emergency budget onwards, assess all of your decisions according to two benchmarks: the old, static Brownite model and our new, dynamic one. We will soon find that commentators will accept the futility of the 50p tax rate and other revenue and growth-reducing measures, so liberating Britain from Brown’s bankrupt thinking.

3) All new contracts as well as the pay of all top executives across the public sector should be published online. In addition, a list of all new jobs and their pay should be published daily by public bodies. This will show to the public the high spending, generous compensation and endemic waste being carried out in their name. All this will make the MPs’ expenses scandal look like small fry, helping us push through spending cuts.

4) We must instruct the Bank of England to stop targeting the consumer price index (CPI), a useless measure dreamt up by the European Union and introduced by Gordon Brown in 2003. The CPI doesn’t include house prices and underestimates the real amount of inflation in the economy. As I suspect you know, it was deliberately introduced to get the Bank to keep interest rates lower, fuelling the bubble and encouraging the crisis. You should tell the Bank to focus instead on a flexibly defined, evolving measure of the amount of money and liquidity in the economy which will help us prevent bubbles.

5) As Chancellor, I will not tolerate any of the spin techniques which have been programmed into the Treasury by my predecessors. I want honest figures for the UK balance sheet. Stop referring to a national debt of £845 billion; always talk of the full figures, including off-balance-sheet liabilities and state pensions, which are probably over £2 trillion. Let’s remember whose money we’re dealing with.

6) I’d like to widen the skills base at the Treasury. I’d like to second some consultants, accountants and lawyers to help you wade through the government’s books and identify as many operations that we can end without affecting legitimate front-line services. My Treasury should be ready to recommend tens of thousands of redundancies, cut quangos and also subsidies to business. The savings will be handy but not massive, so next we must force all government departments to cut staff costs by 5 per cent within one year without affecting output. People will have to work harder. Tough. That is what the real world has been doing for the past two years. My first Budget must be an extremely detailed three-year plan to cut the deficit to £20 billion a year, compared with around £170 billion in 2009-10. That’s a gap of £150 billion, and I believe only £20 billion can be found by indirect tax hikes. The VAT rise will be unpleasant so let us do it at once — to 21 per cent.

7) I want Britain to be the best place to do business in the world. So, in parallel with plans to cut the budget I want you to draft a 10-year plan to make our tax system competitive. The UK should have the lowest marginal tax rates on earnings, profits and capital of any leading economy. I want to surprise the markets by cutting corporation tax immediately. I spoke about 25 per cent during the campaign: I want us to go for 23 per cent. And I will promise to cut the rate by an extra two per cent every year until Britain matches Ireland’s 12.5 per cent. We will pledge not to put up capital gains tax. The 50p income tax will also go — we must turn the tide.

8) I want to commission a cost-benefit analysis of our membership of the EU, including regulatory costs. I want to ensure that the sole aim of UK European policy should be to cut the cost of our membership. Powers will be repatriated — and Brussels’s diktats increasingly ignored. Over time, it will be a major boost to the UK’s competitiveness.

Some of these policies are about picking low-hanging fruit; in the case of the Budget itself, of course, we face an immense challenge. But if we manage to push through all of them during the first 100 days then the markets — and business — will know that Britain is open for business once again. It is no exaggeration to say that the future of our country depends on it.

Yours ever,