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Fiscal policy in the UK needs a massive overhaul and indeed a fresh pair of eyes – a liberal, specifically Keynesian approach, would I believe, be a successful approach to treating the ills of the decaying UK economy.
Taxation in the UK has become synonymous with overcomplexity and opaqueness: it’s time for a rethink. The British tax code is an incredible 24,000 pages long. To put that into perspective, Hong Kong’s is a mere 350 pages. Ironically, the complexity of the UK Tax Code appeals to the very rich, who can afford to employ advisers who help them to exploit loopholes. Hence, the urgent need for reform!
Consecutive budgets from both Conservative and indeed Labour governments, have sought to tax for the sake of taxing, without actually bringing in more money to the Treasury! Furthermore, by adding multiple layers of tax brackets – we have four tax brackets in the UK for Income Tax alone, the underlying problem of complexity and indeed opacity is only exaggerated. Boris Johnson’s government attempted to reverse this trend, but only achieved the opposite.
Simplification is the first step
Governments should be striving to simplify the tax system (e.g. by merging Income Tax with National Insurance), devolve fiscal decisions away from Whitehall (e.g. by allowing local government and regional governments to raise their own taxation at say at least 50%, without being constrained by Whitehall) as well as cutting taxes for those at the lower end of the income spectrum and small/medium sized enterprises (e.g. by increasing the Personal Tax Threshold to at least £20,000 and lifting the minimum threshold by which small businesses start paying Corporation Tax to at least £100,000).
Moving beyond taxation to other fiscal matters, the United Kingdom would appear to be in an ever downward spiral of stagnation, which is largely the result of a prolonged and serious lack of investment in infrastructure. Since the start of Thatcherism in 1979, the UK has spent far less than our counterparts in the OECD on infrastructure, as a proportionate of GDP. Total UK capital investment has been on average 16.6% of GDP since 2010, whilst the average across all OECD countries was closer to 25%. Only Portugal and Greece proportionately spent less on average in that time.
Boost infrastructure spending
We need a massive boost to infrastructure spending in the UK. A firm commitment to spend at least 2.5% a year of GDP (approximately £85 billion) a year would bring us in line with our counterparts in Europe. In addition, as advanced by Keynes, the Keynesian multiplier effect shows that an initial injection of government spending leads to a proportionally larger final increase in national income. This would be a welcome reversal of the chronic lack of growth in the UK economy. Lastly, Reeves et al have constantly banged the drum about delivering better outcomes by growing the economy, without ever articulating how they expect to achieve this, or even persuading anyone that they have a plausible plan to do so.
Forced austerity is not the answer
Finally, the Austerity Narrative has been used as a punitive ploy in recent years to try and reduce public expenditure, most notably post-2008 economic crash, by slashing public expenditure and aiming to lower budget deficits and attempting to reduce national debt. The irony is that during the coalition years (2010-2015), government debt actually grew more as proportion of GDP than during the previous twenty years combined, because the debt-to-GDP ratio increased due to a reduction of deficit spending as a result of the slowing down of the economy that was caused by austerity. Moreover, austerity is a political choice borne out of ideology rather than necessity. Therefore, we need to scrap the austerity policies of the last nearly 20 years and move towards a policy of fiscal responsibility rather than dogma, whilst also ensuring credibility to the financial markets by a fully costed set of policies, independently verified by the OBR.
Kayed Al-Haddad is spokesperson for The Liberal Party for Economics, Fiscal Policy and Monetary Policy.
