From distribution of wealth to tax concerns, post-Brexit policies may not be quite so easy to attribute, says CIPS economist John Glen
Whatever the result of the general election this week, whoever forms the next government will grapple with two major economic questions.
Firstly, how do we best configure government economic policy to maximise the wealth and income-creating capability of the UK economy? Secondly, once created, how do we ensure that it is distributed in a more equitable fashion?
As I am writing this just ahead of votes being cast, let alone counted, I can refer to the economic manifestos and examine the likely approaches.
A Conservative government would offer us a low tax environment, particularly in relation to corporation tax. The latter would drive global organisations to locate in the UK and drive growth via a series of trade agreements, negotiated in a post-Brexit world.
Interestingly, the Gordon Brown simplification of the taxation agenda rears its head in the Tory manifesto, and all parties are committed to anti-avoidance initiatives from HMRC and ensuring all tax liabilities are met. Labour would impose higher taxes on the top 5% of earners and increase corporation tax. Both major parties have drawn the ire of the Institute of Fiscal Studies (IFS) for proposing spending plans that are not fully funded from proposed tax increases. Therefore, whoever wins, expect the usual unannounced tax increases post-election.
Both major parties also agree that innovation and education are likely to be key drivers of wealth creation in the near future. We should expect tax breaks for innovation as both major parties seek to drive UK expenditure on research and development of 3% of GDP by 2030.
The Conservatives would drive efforts to increase productivity and innovation via a National Productivity Investment fund and a UK sovereign wealth fund. Labour counters with a National Transformation Fund and a National Investment Bank, with an emphasis on lending in the regions and to SMEs. While the balance of probability suggests that you’ll be reading this under a Tory government, I wouldn’t be surprised if they borrow some of Labour’s policies on banking for SMEs and potentially differential rates of corporation tax for SMEs.
I don’t think that’s the only Labour party manifesto promise that could be adopted by a Tory government: I’d include Labour’s pledges on government procurement practices. This could include the following requirements for suppliers to government: pay their taxes, recognise trade unions, respect workers’ rights and equal opportunities, protect the environment, provide training and pay suppliers on time.
The last area of economic policy is the management and security of public utilities and transport and communications infrastructure. Both parties accept the need for significant investment. Labour has created clear water between itself and the Tories by suggesting that this would be best achieved if significant proportions of the public utilities infrastructure were taken back into public ownership, reversing a trend of privatisation that started in the 1980s.
Perhaps the most disconcerting consideration is that public or private ownership apart, the IFS is suggesting that neither party has fully provided for in their taxation policy the funds to undertake the necessary public utilities enhancement and renewal expenditures.
The 2017 election may be viewed as a turning point for UK policy. Brexit demands an economy that is outward-looking and competes internationally in terms of the productivity of its workers and businesses. Innovation and education are key drivers of competitiveness in international markets, and will ultimately be arbiters of our success in a more competitive, post-Brexit world.
There is, however, a potential sea change in government attitude to the distribution of wealth and income. While I don’t expect a ‘Robin Hood’ tax if a Tory government is elected, maybe this lady ‘is for turning’ when it comes to the distribution of income as we move into the third decade of the 21st century.