We are living in a world turned upside-down. A world where the Government continues to subsidise the wages of millions of people, where ministers quibble over which countries Brits can and cannot travel to, and one in which the role of the state has grown massively over the past two years, in large part funded by the billions of pounds created at the touch of a button.
People may cry that ‘extraordinary times call for extraordinary measures’, but what we are seeing is not a temporary shift away from the laissez-faire economic model that has defined the past half-century, but rather a more general move towards increased state intervention. There are many reasons, economic and moral, as to why this is troubling.
A hasty recovery from the economic carnage caused by coronavirus restrictions is only possible by championing and encouraging wealth-creation, the overwhelming majority of which is done through the private sector.
There are so many ways the Government could be doing so: cutting regulation the benefits of which do not outweigh the costs, slashing taxes to make the UK more competitive, liberalising immigration policy to enable talent to flow to the UK, removing illiberal and bureaucratic licensing requirements, and many more.
Yet instead, the Government has opted to increase taxation and spending, notably corporation tax, which will do little to nothing to increase revenue, while incentivising companies to shield their profits offshore.
More importantly, we must recognise that all forms of taxation are ultimately paid for by individuals: corporations are just legal entities that exist on paper. The move makes little sense at this time and will substantially harm our recovery, crowding out the private sector and compelling individuals to fund things they wouldn’t otherwise: the very definition of an inefficient allocation of resources.
Furthermore, the de-facto re-nationalisation of railways will do nothing other than channel funds to lines that go unused, whereas the most productive lines, where the benefit/cost ratio of investment is highest, will now receive less funding under revised ‘green book rules.’
Then there are all the other subsidies. Billions of pounds of them: for ‘kick-start schemes’, football clubs, ‘eat out to help out’, farming, a state science institute similar to ‘DARPA’ – all of which further misallocate resources and leave us poorer than we otherwise would be.
There is little sign of this trend slowing down. Ministers have signalled their intention to tear up EU rules around state-aid and procurement, which all sounds good on paper: ‘Great, the Government will create jobs in places where there aren’t any.’ But that argument misses the other side of things: the side we’ll never see.
Each job ‘created’ by the public sector is one or many jobs that would have been created by the private sector but wasn’t. We therefore end up with fewer total jobs, many in industries where they aren’t needed.
Governments are also notoriously bad at picking winners and losers. Ask any economist and they’ll explain that the economy is just too complicated for any one individual or group to understand it. This is not just theory: we’ve been through this before in the 60s and 70s, where Britain was often described as the ‘Sick man of Europe’ and had to request a multi-billion-pound loan from the IMF. That is not something we want to go back to.
Finally, there is the opposition to free-trade agreements, though the Prime Minister thankfully seems to have given his backing to it. Opponents argue that Australian meat would ‘flood the market’ and put ‘British Farmers out of Business.’ This may well be true, but it’s simply the product of people choosing superior products at a lower price.
For those over the past year calling on the Government to act to reduce ‘child food poverty,’ this should be a massive win. Free trade gives us access to better quality goods at a cheaper price, whereas tariffs only serve to benefit a small vested interest at the expense of the wider public. Free trade should continue to be a priority for this Government.
Despite the state’s greatly increased role, there are a number of reasons to be positive. According to the Initiative for Free Trade, there is widespread public support for further trade liberalisation: 87 per cent of ‘Blue Wall’ voters, for instance, are supportive of the UK-Australia FTA.
We’ve also seen the Government’s willingness to tackle Britain’s chronic shortage of housing in the ‘Planning for the Future’ white paper and Queen’s speech. I hope ministers will have the bravery to do what’s right for this country’s long-term future and not succumb to the loud voices of a small but powerful group of vested interests.
We’ve learnt a great deal throughout the pandemic, and this too presents opportunities.
Throughout the past year and a half, many certain rules on competition, licensing requirements, tariffs, and planning were temporarily suspended since it was clear that their costs outweighed the benefits.
The Government could easily make these changes permanent and go further by cutting excess bureaucracy which often has unintended consequences. Britain’s exit from the European Union also continues to present opportunities for further trade-liberalisation.
The time to make lasting changes is now. For Johnson’s Government to truly deliver on its ‘levelling-up’ agenda and create jobs and opportunities for all, the choice is clear: we must embrace trade, markets, and the freedom to choose.