By Sean Garman
The British economy that George Osborne inherited from Labour was on its last legs. The previous economic model, combining the golden goose of the City of London with big-spending and big-borrowing central government, ran out of steam. The financial collapse was caused by excessive credit and excessive debt in the private and public sectors. A credit bubble was blown by the Labour government as a substitute for facing up to the real challenges of a reindustrialising society, locking up far too much financial and human capital in an unproductive public sector and a bloated welfare state that left 1/3 of people with no school qualifications classified as too ill to ever work again.
After three years of, at times, timid reform, economic growth is moving towards “escape velocity” with 2013 GDP growth of 1.9% and forecast 2014 growth of 2.4% confirming a recovery. The roadblocks to locking in future economic growth are returning to a broken model of pumping up personal debt in the housing market and undermining large-scale business investment by meddling by a central government.
The Labour Party has recently gone on a splurge of big policy announcements to promote “competition” in various markets and tax anyone earning above £150,000 income 50%. In sum, this is nothing more than a return to Labour’s age old class struggle narrative refitted for a modern audience where a 50% tax is “temporary” although there is no clearly defined end date, where energy companies who earn a 4% profit margin are considered “greedy” and anyone who disagrees with them is and labelled “fat cats”. These ideas are crude political gestures that do nothing for Britain and breed jealousy and antagonism for Labour’s narrow political ends.
Britain is operating in a globalised economy where access to technology, new work practices and markets competes with, and disinherits, the traditional notions of “national” champion and “national” economic policies. This is great news for entrepreneurs who can quickly leverage platforms for their product or service and sell it globally, but is a challenge for many people who suddenly find their main competitors producing products at a fraction of the cost.
The sad reality is that there is no “magic bullet” reform. The low-hanging fruit was picked in the 1980s by the Thatcher Government. For Britain to lock in the next decade of economic growth the focus must be on establishing a solid foundation. Britain needs low and simple regulation and taxation regimes; business friendly tax policies for instance business rates, taxable depreciation, R&D credits and patented revenue, which is vital SMEs who are just starting to enjoy economies of scale, but find their effective tax rates shoot up; to revolutionise tertiary education; and reverse damaging cuts in investment spending.
The economy is the “main game” for the next general election and the party that has the best chance of winning it is the one who can set out the clearest and most compelling economic narrative. Labour’s narrative is crude and abusive for many hard-working people who are being relied on and stigmatised at the same time. As my colleague said last month however, this will be the year that can decide the next 10 as nobody should be foolish enough to believe Labour’s snake oil salesman can’t win.