29th July 2011
The Mayor of London Boris Johnson wants the Chancellor to cut national insurance and remove the 50p higher rate tax which he says would boost the City of London reported here in the Telegraph. Johnson said: "You've got to look at ways of stimulating growth now, and certainly I think you should look at National Insurance. You should look at ways of stimulating consumption confidence in the market."
Will Hutton, who has spent years suggesting that the UK was taking the wrong economic tack, believes we must follow many Asian countries with a growth boosting strategy, outlined in this article for the Observer. "The government has to become a leading change agent in its own right, rather as the Singaporean, South Korean and Japanese governments have been, but in a wholly different context. It has self-consciously to create the architecture to support business investment and innovation. It has to promote long-term business ownership and lean towards the insurgent companies rather than protecting incumbents. The pace of technological change is accelerating, and there has to be massive social investment, especially in the capabilities of our young people," he writes.
The Guardian assembled a panel to discuss the issue. The two most interesting contributions came from Digby Jones former minister and former head of the Confederation of British Business. Jones says he "would abolish national insurance contributions for employers. It is an invidious tax. It has no relationship with profits earned or even turnover generated. It is a tax on employment, pure and simple".
Meanwhile Stephanie Blankenburg a lecturer in international political economy at the School of Oriental and African Studies in London suggests an investment bank, more social housing to ease the pain for the squeezed middle and the employment "of 50,000-100,000 people to monitor and recoup income from tax avoidance and evasion".
The Business Secretary Vince Cable believes the Government and Bank of England may have to return to quantitative easing reported here on the Financial Times Westminster blog. In a speech Cable said: "It's about the Bank of England pursuing policies such as low interest rates, which is also helping our exchange rate down, and also using an expansion of quantitative easing, perhaps in more imaginative ways, not just acquiring Government securities."
Matt Oakley of right of centre think-tank Policy Exchange writing on the Spectator's coffee house blog suggests a better industrial policy, perhaps surprising from a magazine that has often been seen as the home of laissez-faire. He writes: "First a clearer approach to industrial policy is needed. This is not about picking winners but about being clear about where growth comes from, where the UK has a comparative advantage and where we are world leaders. It is then about ensuring that structural reform facilitates growth in these areas and creates funding for innovative businesses, while encouraging robust competition" On more familiar territory, he adds: "Policy Exchange will soon be publishing a report outlining how a new pro-growth approach to planning and urban development could stop central and local government control constricting the growth of our cities and towns, and hindering business development. The UK also needs to accelerate reform to its welfare system to increase labour supply and productivity."
Also on the right, Philip Booth of the Institute of Economic Affairs keeps the laissez faire flame alive. Here, writing on the Wall Street Journal, he suggests the Government stay out of economics and stop favouring services over manufacturing. "Neither the prime minister, nor the chancellor, nor their civil servants nor even the best economic forecasters are in a good position to determine the industries of the future. Perhaps the future of the U.K. economy will indeed belong to manufacturing-but that determination should be left to investors and entrepreneurs, who will respond to the price signals that show what goods and services will be most valued both at home and for export. "As ever, the government should focus on doing less and not more. Our spending in traditional manufacturing regions and these issues are worth addressing. Our intellectual classes have a long-standing prejudice in favour of "making" things-or at least in favour of other people making things. If anything, we can only marvel at how successful the British service sector has been despite this prejudice."
The shadow Chancellor Ed Balls has been everywhere promoting his solution – less cuts in services and a VAT cut. Here is his own blog. "Temporarily reversing the VAT rise, which is costing families with children £450 per year, would give our stalled economy the jump start it urgently needs and so help get the deficit down for the long term. The government also needs to get the banks lending to small businesses and use the funds raised from repeating the bank bonus tax to get young people off the dole and into work," he writes. Balls actually name checks the Federation of Small Businesses in support of his move. Here is their release also advocating VAT cuts. The FSB is calling on the Government "to follow the lead of other EU countries and cut VAT in the construction and tourism se
ctors to five per cent for a year to help give the economy a real boost. Consumer demand is a large barrier to economic growth so a VAT cut would encourage people to spend in these areas."
But let's end on a high note. Here writing in the London Evening Standard, Goldman Sachs chief economist and chairman Jim O'Neill says things are better than they look. His reasons are twofold – one employment is quite high – two the Government figures are not truly reflecting the situation. "In my judgment, the UK economy is probably stronger than these figures suggest. It is also the case that the ONS is still systematically underestimating the country's economic performance. It would be my guess that actual GDP growth in the past two years is 1.5 to two per cent stronger than has been reported, and within 18 to 24 months from now data revisions will show this to have been the case."
Maybe we are all right after all.
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