Jethro Elsden is a Data Analyst and Researcher at the Centre for Policy Studies. This article is written in a personal capacity.
Since the Coronavirus outbreak began, many have compared the situation to the Second World War, with Boris Johnson compared to Winston Churchill. No doubt the Prime Minister enjoys such comparisons: he did, after all, write a book about the great man and is clearly an admirer.
However, once the crisis abates and we return to normality (hopefully within the year) we will needhim to turn from Churchill and instead look for inspiration and guidance from that other great twentieth century Conservative titan – Margaret Thatcher.
For it will only be by following her example and enacting radical supply-side free market reforms that we can hope to generate the extra growth we will need to get us out of the economic and fiscal hole we’re going to be in.
The scale of the economic and fiscal challenge the UK faces post-crisis can be seen from the grim Office for Budget Responsibility analysis which forecasts a larger fall in GDP and larger deficit than after the financial crisis.
Worryingly, its forecast of a rapid recovery is unlikely to come true. The fiscal position is in any case almost certain to be worse than the OBR anticipates, given the irresistible pressure that there will be to increase NHS funding and sort out social care. On the UK’s current growth path, the only way to pay for the extra spending and higher debt burden will be more austerity, taxation, and higher inflation.
The only alternative is to prioritise higher growth above all other aims, such as regional rebalancing or the net zero emissions target. To generate higher growth, we need to follow Thatcher’s example and introduce fundamental supply-side reforms.
The Government will need to be radical, so that we slash the cost to businesses of hiring new workers and investing in new factories and equipment, get rid of the red tape which slows down business formation and inhibits competition, and reform the education system to deliver a labour force that is better equipped and more flexible than pre-crisis.
For example, although initially expensive, full expensing would really help to boost investment and increase productivity. While the government should resist the temptation to try and increase taxes, it could look at introducing some form of Land Value Tax (LVT), perhaps as a way to replace business rates, which are a persistent complaint of businesses.
An LVT would also make land banking economically inefficient, so would lead to house building speeding up, which in turn would help the construction industry to recover. Prior to the crisis, the Government was making good noises about adopting the recommendations of the Building Better, Building Beautiful Commission, but it should go further in liberalising planning since such restrictions are perhaps the biggest single drag on growth.
In many areas of regulation, the UK is overly stringent, with rules that increase costs and reduce competition. Take childcare – we have the toughest staff-to-child ratios in Europe. We should look at relaxing these: we could even copy Sweden and Denmark which have no mandatory ratios.
Furthermore, much of the economy is suffering from a plague of Government-mandated credentialism, with many jobs unnecessarily requiring official qualifications. These should be relaxed: for many jobs such as nursing, childcare provision, or agricultural engineering practical hands-on experience is more important than an academic qualification.
Clearly, the higher education system is not working effectively – there are too many poor quality courses failing to deliver value for money. Many graduates now find themselves in jobs where a degree is not needed – if they had gone straight into the workforce rather than gone to uni, they would have a valuable three years worth of experience, and resources would not have been misallocated funding their course.
The Government should look essentially to privatise the higher education system, switching most government funding to focus solely on high-return courses and funding R&D. Universities will complain but, if the services they provide are so valuable to their students, then they should be willing to bear the risk and take equity stakes in students’ future earnings to finance courses. This would save billions in government spending and lead to a more effective higher education system and a better trained, more productive labour force.
Finally, we’ll want to be maximising the number of new jobs that are created, so the Government needs to make sure its policies don’t increase the cost of labour for businesses. Therefore, there should definitely not be further increases in the National Minimum Wage for the time being.
It’s already become something of a political football anyway, and was probably getting close to exceeding the market wage before the crisis hit. If we have a dose of deflation, the government might even need to look at reversing the recent increase in it, or face the consequences of sticky wages leading to persistent high unemployment.
Just as in the case of the Thatcher governments, many of the policies necessary to boost growth may be met with initial hostility and resistance (even with an 80 seat majority). Clearly, the Prime Minister would like to lead a unifying government, especially after the bruising experience of Brexit.
However to quote Thatcher herself: “you cannot lead from the crowd”. If he wants to maximise the post-Coronavirus economic recovery and lay the foundations for the future economic prosperity and stability of the UK, the Prime Minister must be prepared to push through initially unpopular reforms which, given time, will generate the extra growth the UK will so desperately need. The alternative of higher taxes, more austerity, and higher inflation is unlikely to prove popular with the electorate.