What did you worry about most during our generally rubbish election campaign? My guess is it wasn’t economics. The majority of our political conversation was about social care, nuclear weapons, terrorism prevention and policing. These are all important, but how we deal with them depends on the underlying strength of our economy – and it is odd how little this has featured.
We do, after all, have some very serious problems on our hands. We have an unsustainably large national debt. We have a consumer credit bubble. Everything to do with money has been hugely distorted by the behaviour of our uncontrollable central banks. We have super-slow productivity growth. And, while we know that tax is a huge behaviour changer in the UK (anyone in doubt should look to the effect tax-relief changes are having on the buy-to-let market), we have a tax system that everyone agrees is rubbish.
Nevertheless, no one has offered any suggestions as to how we can rearrange our welfare state so as to stop adding to our debt indefinitely. No one has the faintest idea of how we back out of the dead end that is modern monetary policy. No one has offered an explanation, let alone a solution, to our productivity problem (and hence the problem of low wages).
Is it about tax credits encouraging part-time rather than full-time work? Is it super-low interest rates allowing low-quality companies to stay in business? Research out this week suggests that a rise in rates would instantly bankrupt 80,000 companies. Another likely explanation is CEOs being given an incentive to prioritise short-term profits over long-term investment.
On to the tax system. Over the last six weeks we have heard a lot about which taxes should go up and which down. We have heard almost nothing about how our system should be reformed so that it works – how it can raise the largest possible pile of cash while causing the fewest possible distortions.
Why not abolish national insurance and raise income tax to compensate? Why not dump inheritance tax for a gift tax, or capital gains for a land tax? Why not have a genuine bonfire of the tax reliefs and see what happens? And why, at the very least, can we not have a sensible conversation about all this? After all, the tax take now makes up 37% of GDP and, as George Bull of RSM points out, “households… would take a long, hard look at anything that cost them almost 40% of their… income”.
The UK economy is in a tolerable state at the moment. But unless some of our very big problems are addressed with some urgency it won’t remain that way. Over the last six weeks few of them have been addressed with any urgency. Now they must be.