'Bashing the bankers' is one of Labour's last electoral lifelines. [Possible Tory infighting and the proposed election debates are the other two]. When, later today, Alistair Darling announces that he'll be imposing a windfall tax on bankers' bonuses we know what he's doing. He wants to create a new dividing line with the Conservatives. From their reaction to previous budgets' 45p and then 50p tax bands, we know how the Tories will react. They may quibble with the timing and detail but they won't allow themselves to be painted as the bankers' friends. In the early 1980s Geoffrey Howe actually imposed a 'Tory windfall tax' on bank profits.
But if Labour's main narrative is going to be anti-banker (and anti anyone who earns a lot of money) that cannot be the dominant Conservative theme. The dominant Conservative theme must be positive and forward-looking. The Tory narrative must, as Lord Forsyth wrote on Monday, be pro-growth.
Without deficit reduction British business will be uncompetitive. The tax and servicing costs associated with Brown's deficit are a huge handicap on the UK economy. A growth agenda begins with cutting spending. Reform's Back to Black report found "evidence that rising public spending (as a percentage of GDP) lowers the long-term growth rate." "One recent study," it noted, "suggests that for every one percentage point increase in the share of government consumption in GDP, there is a reduction in growth of 0.2 percentage points”.
George Osborne knows that that is not enough and he is making increasingly encouraging noises about major reform of corporation tax so that Britain becomes an attractive headquarters for global businesses. For smaller businesses there is the promise of no national insurance payments for the first ten employees for companies started in the first two years of a new Conservative government. Ken Clarke is destined to run a new anti-red tape star chamber that will insert sunset clauses into regulatory bodies and insist that at least one regulation be axed for every new regulation suggested. Tory candidate and economic strategist Charlie Elphicke is excited about this:
"Forge London anew as the business capital of Europe, the growth engine of our land," he told ConservativeHome. "George Osborne's business tax reform ideas can make London the business centre of our continent, as well as its financial centre. And lighter touch regulation, making it easy and simple to set up and run international businesses from the UK would build on our history of being one of the greatest trading and venturing centres the World has ever seen. With these measures we can embrace and win from globalisation."
For long-run growth prospects the schools policy of Michael Gove and the vocational skills policy of John Hayes MP are going to be vital but what else would a more immediate growth agenda include?
For Dan Lewis of the Economic Policy Centre a clean up of banks' books is the starting block for growth:
"Force the UK's banks to own up to the full extent of their losses publicly with published independent audits commissioned by the government. Set aside all toxic debts in separate portfolios to be held by the government to be sold later – to be paid for by a fee from the banks themselves over a period of time, with the prospect of them being sold a a later date. Only then will they start lending to each other again as much as they used to and after that, the rest of us, because they will know only then the extent of their lending risk."
The IoD have today set out a twenty point 'Economic Recovery Plan'. Key ingredients include:
- "A progressive reduction in the main rate of Corporation Tax to 15% over the next decade.
Cancellation of proposed increases in National Insurance and the top rate of Income Tax – funded by higher VAT.
- Ring-fencing and exclusion of key infrastructure spending (transport, energy and IT) from spending freeze.
Decentralisation of public sector pay, with hospitals and schools left to decide who gets what.
- Personal incentives for civil servants to reduce the stock and flow of regulation.
- Liberalisation of the planning system to help avoid housing boom ans bust."
Growth is the most socially just of policy goals. As the IoD's Miles Templeman notes: "Compounded over a 40 year working life 1.75% GDP growth increases output by 100% but 3.5% growth increases it by almost 300%."
Increasing the underlying rate of UK growth must be the Shadow Chancellor's number one priority. George Osborne has very appropriate initials. He needs to become Mr GO!
> ConHome's new Going for Growth series begins today with Shane Frith's argument for a liberalisation of the supermarket sector.