What Rishi Sunak should do but won't!
The UK is in a hole, a large one and getting deeper by the day. The fact that Europe and Japan are in similar holes is no consolation.
Worse, nobody offers credible solutions or routes forward. You cannot achieve the necessary reduction in public expenditure by 'salami-slicing' departmental budgets, especially as cuts in NHS, welfare, pensions are politically toxic. There is no serious possibility of any government challenging these expenditure shibboleths and it is simply not worth therefore even considering it.
So, having set out just how intractable the situation is, how would I, how do I believe a libertarian should address it?
My proposed programme has 4 elements or legs. (In proposing this, please understand that i do not expect any of this to happen but I do think it is rational and makes sense: it is what I believe ought to be done - and could in my opinion provide a practical Libertarian programme for the UK. I understand that it is pragmatic and a long way from what many Libertarians would actually desire but in politics striving immediately for the ideal is a path to irrelevance!)
Leg 1. Apply Laffer's thinking across the board. What I mean by this is ask of every tax the following question: what level of tax would maximise revenue? Laffer's insight is that simply raising taxes does not optimise revenue once you add behavioural disincentives. If you take away all my money or too much of it, I won't bother making the effort to earn it. And if you tax products too highly, you substitute smuggling and black and grey markets for the legal product. A good example is cigarettes. Reduce the taxes and you will reduce black market activity and bring in more tax revenue. The Treasury should look at every single tax and ask what taxation level would in time increase revenue? The experience of Ireland shows without argument that a lower corporation tax rate BRINGS IN MORE. Rep of Ireland corporation tax is 12% and they have DOUBLED revenue from that tax since 2016. You also get more international investment. On corporation tax, Kwasi Kwarteng was right, and Hunt is wrong.... I want to apply that across the board to maximise tax efficiency and state revenues.
Leg 2. Look at all spending and axe whole programmes wherever possible. There are some very obvious candidates for the chop. The first is agriculture support. Much agriculture support has transferred money from poorer taxpayers to wealthy landowners like Prince Charles and the Duke of Westminster. So, simply axe all support unless a specific programme can be demonstrated to more than cover its costs and make a profit for the state, bring in more than it costs. Let the market operate! The same applies to the whole Net Zero programme. Remove all 'green subsidies' and allow renewables to pay for themselves. Please understand that anybody can still choose to invest in renewables, the state has just stopped incentivising this and thus distorting market choices at great cost to the taxpayer.
Just in passing, I want to add that in the UK charities are by law not supposed to be political yet many now are - advancing green and woke agendas. I would remove the charitable status and government grants to all that are political, defining what is 'political' broadly and in line with common sense. This would save taxpayers' money and generate a small amount of extra revenue.
Leg 3. Look at new sources of tax revenue. There is an obvious and immediate candidate. Looking at the successful example of Colorado (there are others), legalise and TAX cannabis on the UK's alcohol model. The resulting legal product and markets would not merely raise revenue but also allow skunk to remain illegal. We do not drink pure alcohol. We have quality and strength controls. The cannabis market would evolve on that model - brands of known strength and quality would quickly emerge - and tax revenue would grow rapidly whilst the most damaging high THC cannabis (skunk) is replaced with the safer, milder, less damaging legal product. This form of legalisation really is a 'no-brainer' and it is indicative of inflexible closed minds that it is not happening: it's a 'win: win' for both taxpayer and state. Moreover, there would be no limits on exports. If other jurisdictions continue to make the UK product illegal, that is their choice but, provided UK taxes and duties have been paid, anyone would be free to take these legal products out of the country in whatever quantity they choose. In short, we could rapidly become world leaders in cannabis production and an entirely new sector benefiting taxpayers hugely would thus be created.
Leg 4. Having set out the immediate steps, leg four involves developing the thinking to its logical conclusion. As a post-industrial economy, we need to identify and develop the sectors and activities which offer growth potential. We are unlikely to achieve our economic goals through mass manufacturing. Instead, we should be: - the 'museum of the world', - the night-club of the world', - the 'service provider' to the world, - the world's financier.
These are achieved not by subsidy at taxpayers' expense but by deregulation and legalisation to remove all obstacles to the entrepreneur.
We must ensure that our laws and regulations are 'permissive'. Here are a few examples:
uber and Airbnb type services should be encouraged, not restricted. In particular the tax and local government regimes must not be allowed to block people using their own property in this way.
Prostitution should be legal and taxed as it is in Belgium, Holland and Germany. Trafficking and exploitation rightly remain criminal in these jurisdictions and the prostitutes themselves feel and are a lot safer when all is legal.
Having pioneered drug legalisation with cannabis, we should go down the same route with cocaine, amphetamines etc. The 'war on drugs' has failed at massive expense to the state and taxpayers whilst also massively increasing the costs of 'law and order' and criminality. Let's - after decades of failure - stop metaphorically banging our heads against a brick wall in the hope of a different outcome.
Insurance and banking products should be allowed but on condition that there can be no taxpayer bail-out. This may require rethinking liability and creating two classes of institution and/or products with the provider knowing that if they go insolvent, then it is their responsibility: taxpayers will not oblige. And pension funds, wealth-managers, hedge-funds and other financial institutions must know in advance that their entire investment is at risk and if there is mismanagement, it may all be lost.
As the corollary to this, one could prohibit the instiutions which could be bailed out from engaging in certain types of products, particularly the complexities of derivatives. For instance, the infamous 'credit default swaps' which helped cause the 2007/8 financial crisis or the 'liability driven instruments' which have caused so much trouble to UK gilts over recent weeks would only remain possible for institutions which would not be subject to a bail-out. In this way, risk could be real rather than at taxpayer expense.
Others may be able to add to my list of measures in leg 4.
This is what the Tories should be doing to extract us from our current travails. And it is what the Opposition should be proposing. Neither will, of course. They are all far too committed to learning nothing from history, reinforcing failure and hoping, despite all the evidence, that continuing with the same tired thinking and policies will somehow produce a different outcome.
Who knows, it might even allow us to start funding health, welfare and pensions as the Country demands!
Guest piece from Tony Brown, former political advisor.