The new prime minister must unveil an economic vision that is growth-oriented and uncompromising towards business. Based on a sound fiscal strategy that keeps public finances in shape and reduces the budget deficit over time, plus a supply-side program that revitalizes small businesses and helps people live well.
It is a strategy that requires challenging the orthodoxy of the Treasury, plus ensuring that the Bank of England keeps inflation at bay. Our economic institutions must grow, do their jobs and serve the people.
Unfortunately, Boris Johnson’s government failed to have a coherent economic strategy. Under his Chancellor, taxes are going up, not down. The promise was not fulfilled. An obsession with the budget deficit developed. This needs to change. The decision to increase National Insurance Tax last autumn was economically unwise and could have been avoided.
While a new prime minister can take decisive action, that person must also ensure that people are realistic about what can be done immediately.
Mr Johnson has broken the Brexit deadlock. It is now up to the new leader to resolve the challenges and seize the opportunities that lie ahead. It’s a process, not a one-time event.
Economic growth and productivity in the UK have contracted since the crisis of 2008. This has fueled the Treasury’s view that low growth necessitates higher taxes because much of the budget deficit is structural.
Mr. Johnson and Mr. Sunak failed to challenge this misplaced thinking. It’s like being in a hole and digging deeper. With a huge margin of error even a year ahead in official budget projections, projections of what might happen decades ahead should not limit the ability to act now.
We face two immediate challenges of rising inflation and an economic slowdown that could turn into a recession. Tighter monetary policy is needed to curb inflation.
With confidence collapsing and domestic demand weakening, reasonably targeted tax cuts are warranted.
I suggested Mr Johnson provide “timely, targeted and temporary” aid to those most in need. He took this essential measure. Low-income people suffer. More such help will be needed this fall.
But other tax cuts are still needed and can be made without triggering inflation, provided they are also timely and targeted.
Cut fuel taxes further. Cancel the planned increase in corporate tax while combining it with attractive investment incentives.
The pressurized environment should also no longer be ignored. The basic rate of income tax can be reduced without triggering inflation, but the timing must be consistent with other developments.
The supply-side agenda must focus on all the Is – investment, innovation, infrastructure and the right incentives, with low taxes and smart regulation. This will help reduce inequality and should inspire younger people.
The UK has more universities in the world’s top 100 than the rest of Europe combined. We should take advantage of this. Likewise, our vocational training should be activated, as it should go hand in hand with the green agenda, which can be central to regional policies.
This begs the question, who will be best to deliver this economic vision, not succumb to groupthink, focus on growth rather than debt servicing costs and truly protect the UK globally? For me it’s Penny Mordaunt.
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