Bat Shed Crazy

Plus more trade stuff

Data released from the ONS today shows that the UK economy grew by 0.1 per cent between July and September. This, obviously, isn’t great. If it continues then we’ll see living standards continue to stagnate, we’ll fall further behind many of our international competitors, public services will be in an even worse state, the tax burden will rise even higher, and we’ll experience another lost decade. Happy Friday!

So, what should be done about it? In the past week we have seen people touting solutions and, unsurprisingly, they centre around the person’s views on Brexit. This has obviously been going on for over six years now but has become amplified once more since Trump’s election victory. Those on the Remain side are arguing, of course, that this means that the UK has to absolutely rejoin the EU as that is the only thing that will save the country. On the opposing side we have the hard core brexiteers who really seem to loathe the EU and see a trade deal with the US as the big thing which will drive growth and reverse the UK’s fortunes.

If you’re a regular reader of this blog then you’ll know that I think that international trade is fantastic. Free trade has helped to bring prosperity to the UK and has lifted countless people out of poverty. We should be doing much more of it. 

However, as I’ve written before, rejoining the EU would be a waste of the UK’s time at the moment. What is more, we shouldn’t be pursuing a closer relationship with the US if that would jeopardise our relationship with the EU which remains our most significant trading partner. Of course we should seek to see where we can build on our trading relationship with the EU while also increasing trade with the US and, while this will involve trade offs, they will not always be mutually incompatible.

I say all this because while I do think that the UK should be seeking to strike new trade deals with the rest of the world, the trade deals themselves are not really what will bring growth and our lack of a trade deal with the US is not what is causing our lacklustre growth.

Instead, the government should be focussing on domestic reforms which enable firms and workers to be more productive which will be the key driver of economic growth which will both boost living standards in the UK and allow firms to produce more things to sell to other countries and see households be able to afford to buy more things from companies around the world.

A key way in which this should happen is through tax reform. We need a radical shake up of the tax system which sees an end to different rates and exemptions and which are instead lower, broader, flatter, simpler, incentivise investment, and distort economic activity as little as possible. As I wrote last recently, this is unlikely to happen due to Labour’s Austerity Budget and so things are likely to get even worse in this regard.

The only other hope is that the government will get to grips with fixing the country’s planning system which makes it illegal to build practically anything as it is either gamed by rent-seeking NIMBYs who want to prevent anything from being built in order to prop up the value of their own assets or by well meaning but ultimately misguided campaigners and quangos which insist on reviews and consultations and additional infrastructure designed to protect the environment but which results in it becoming prohibitively expensive to get stuff built.

A prime example of this is the fact that HS2 is £100 million more expensive to build as a ‘Bat Tunnel’ has to be constructed due to the possibility that the railway line will disturb any bats which happen to be in the area. There are countless other examples of where planning permission has been denied or delayed or where construction costs have skyrocketed due to concerns over the potential impact on wildlife.

Of course we should seek to protect the environment and growth should not come at the cost of this. However, we should not allow these concerns to stand in the way of any homes or infrastructure from being built. 

The country desperately needs to build more offices, labs, data centres, solar farms, wind turbines, nuclear reactors, railway lines, and millions of new homes. That is the only way we will improve productivity and increase economic growth. The only way this can happen is by the government using its massive majority and all the political capital which comes with that is to drive through changes to the planning system. It is this – not necessarily trade deals here and there – that will drive economic growth and will actually in turn boost economic growth.

All that being said, yesterday I wrote a piece for CapX on why the UK should definitely attempt to negotiate a comprehensive FTA with the US. You can read it here. It should be considered the companion piece to my post from earlier this week where I argued that a deal with the US should not come at the expense of our relationship with the EU.

Thanks as ever for reading. Have a great weekend!