The UK Economy, It's Very Sick

During the Tory Leadership Contest back in 2022 I wrote an article for The Critic on the Conservative Party’s nostalgia problem. Two years later the launch of the manifesto today shows that unfortunately very little has changed. Reports swirling around before the launch that Sunak wanted to channel his heroes Margaret Thatcher and Nigel Lawson and pitching himself as the heir to Thatcher. The content and accompanying speech are full of promises of tax cuts, cutting the size of the Civil Service, and stoking up fears of out of control trade unions.

Sunak’s admiration for Thatcher is understandable. Despite making many mistakes, she really did transform the UK for the better and managed through her policies and determination to reverse the UK’s terminal decline (referencing her is also like catnip to the Tory members). 

However, Sunak is wrong to attempt to emulate the policies of Thatcher and Lawson by focussing on tax cuts or demonising the public sector. The reason why Thatcher’s reforms were so transformative is that her team had spent years analysing the UK economy’s problems so they could identify what was holding the country back and what needed to change. When Thatcher came to power taxes were ridiculously high and the State was far too bloated which allowed trade union barons to hold the country to ransom. As such, Thatcher and Lawson were right to take on the unions, privatise sectors of the economy, and cut taxes. They correctly identified the country’s sickness and so the medicine they prescribed was the right one and it worked.

What about today? The tax burden is still too high – especially on working people. As for the size of the State, it probably is too bloated in some areas and we certainly need to rid ourselves of the mindset that the correct solution is only ever to throw even more money at public services such as the NHS. With perhaps the exception of public transport, I would find it difficult to argue that the unions wield too much power.

So, while it would be nice to see the tax burden reduced, the level of taxation is not the main driver of low economic growth in the UK. As such, cutting taxes should not be a priority for the Conservatives (the exception here being Stamp Duty Land Tax which should be abolished entirely and immediately).

The main reason that economic growth is so sluggish in the UK is because it is essentially illegal to build anything. The country’s incredibly restrictive planning system is constantly gamed by rent-seekers and NIMBYs which means we can’t build the nuclear power stations, wind turbines, solar farms, data centres, science labs, film studios, offices, transport infrastructure, and – most importantly of all – homes. This is massively hampering productivity and meaning that economic growth has been so low.

Rather than repeating the mistakes of the past by pouring petrol on the demand side fire by reviving policies such as Help to Buy and tinkering with the tax system or increasing the burden on vulnerable people by slashing their support and forcing them back to work, Sunak should promise to take on the NIMBYs in his own party by liberalising the planning system and delivering the supply reform that the country so desperately needs.

Doing so will finally deliver economic growth, allowing the government to implement tax cuts in a sustainable way which will in turn lead to more economic growth.

You admire Thatcher if you want to. However, her policies were the right ones for her time, not for the UK in 2024. 

Thanks as ever for reading. I will probably do a longer piece with some more in depth analysis of the manifestos of the three main parties towards the end of this week and am still aiming to write a relatively short post every weekday of the campaign. If you’d like to support Opportunity Lost then you can do so here: https://buymeacoffee.com/opportunitylost