This piece is a transcript of Tony Danker’s speech at a joint CBI / Centre for Policy Studies event held on Thursday February 1.
Today, we need to talk about growth.
With labour shortages, supply chain problems, energy prices soaring, inflation outstripping wages … we need to talk about growth.
It’s one year after we left the European Union.
Brexit was a two-part plan. Part one, leave. Believe it or not, that was supposed to be the simple part. Part two, growth – better growth and greater competitiveness than ever before. Unleashing the hidden potential of Britain. And on that front, we haven’t had the chance to get started.
I am a big believer in the opportunity of post-Brexit Britain. I think it gives us the burning platform we need to push the UK’s huge economic potential. I think it gives us the freedoms to make our own big bets. I think it gives us an opening to lead the world on modern and empowering regulation. I think it can awaken us from the flatlining productivity that took hold after the financial crisis.
But that is not where we are headed.
The Government has a new talking point – we are the fastest growing economy in the G7. I get the spin, but I deeply hope that no one in Government believes their own PR.
V-shaped recoveries around black swan events are not a time for credit or blame. The downward nosedive is not an accurate judgement of economic performance and nor is the climb back up.
We get a much-needed dose of reality from the independent OBR. Their forecast is their judgement on the UK’s economic trajectory: once the rebound is complete in the next 18 months, we will grow as an economy by 1.3-1.7%.
For a country that is used to growth at 2-2.5%, it is simply not good enough.
And what’s truly worrying is that the Government has accepted the forecast as the target. The trajectory as the potential. Everything the Government is currently trying, to get growth going, merely achieves a new normal of low growth.
We have lowballed the UK. It’s in our numbers, and it’s in our plans. But at the CBI, we think we can do better.
A little bit of politics
Of course, this becomes political pretty quickly. As we saw yesterday at PMQs, every party wants to be the party of growth now. Well, the CBI doesn’t do politics – I think Robert’s a better choice for that. However, I know this government really does care about growth – but it’s weighing up contrasting Conservative principles.
This is a party that believes in low taxes, but also in fiscal discipline. This is a party that believes in low regulation. And yet, it also believes that social goals can trump that. It regulates against unhealthy foods or to keep retail gas prices artificially low. Even on Brexit, it tolerates a huge short-term uplift in regulation – in the service of sovereignty – while aiming to reverse this over time.
Ultimately, only elected politicians can decide the right blend of taxes, spending and borrowing. Only politicians can decide the right mix of regulations.
What I will say is that the current settlement isn’t working. There are rising spending pressures; too much tax; and too little growth. As a great man once sang, we’re caught… in a trap.
We can’t afford low growth
Let me be clear why this is such a problem. Today’s high spending, high taxes and low growth is a vicious cycle that’s hard to break.
Cutting spending is far from straightforward, which is why no political party wants to do it.
By the end of 2021, a record 6 million people in England were waiting for routine hospital appointments. And the IFS warns the backlog could hit 10 million as appointments that were deferred during the pandemic resurface.
And there are backlogs in the courts, school pupils behind on learning and transport funding models being squeezed.
Meeting the needs of an ageing population in the years ahead will put even more pressure on the public purse. By our calculations, by 2030 we may need to find an additional £40bn-£50bn a year to cover the costs of an ageing society.
So, how do we pay for that? The Treasury are naturally turning to taxation. But can we really raise taxes further?
The UK tax burden is already set to be the highest sustained level in peacetime.
On corporation tax, analysis by the CPS and the Tax Foundation shows we’re currently the 11th most competitive in the OECD – in part because of the value of the Super Deduction. But when this ends next year and the Corporation Tax rate increases, we’ll fall to 31st place.
And before the government says the UK is still competitive on business tax – by looking only at the Corporation Tax rate – it should accept that’s comparing apples and pears. It doesn’t include for example the UK’s eye-watering property taxes – the fourth highest in the OECD.
We know the evidence that raising taxes reduces growth and cutting them drives it. After all, we cut VAT to stimulate consumption. We remove road tax to stimulate the buying of electric cars. And of course, Robert, you and your Conservative colleagues are deep believers in lowering taxes to stimulate economic growth.
The Government are in a tough spot in all of this of course. They say we can’t afford to spend more on growth. But I say we can’t afford not to. Simply put, we will not pay down today’s debt, extend public services and reduce taxes on 1.6% growth.
To be clear, we’re not talking growth by any means. We’re talking sustainable, long-term growth that stems from more investment, innovation and productivity.
Now it has been the Treasury’s job as an institution since the stone age to be sceptics of this kind of talk. But economic policy and fiscal policy are not the same thing. No CEO puts the Finance Department in charge of sales. Or lets them alone determine strategy. Companies can’t afford not to invest in growth. And nor can countries.
It’s also not just about money – it’s about ambition and imagination. And above all, it’s about the political confidence to replace incremental policy with bolder and better.
Tony Danker in conversation with CapX editor-in-chief Robert Colvile
Reasons to believe
Can we do it?
Well, first, we’ve done it before. Between 1993 and 2008, the UK market sector grew by 3% a year – twice the rate of the last decade.
And this wasn’t, as some think, about unsustainable bubbles in sectors like oil, property or financial services.
Three-quarters of this growth was driven by capital investment, new technologies and innovation – double what they’ve contributed in the last decade.
Second, look at other countries who’ve done it.
I will name one, with a hint of menace. Singapore. Reduced operating costs and cut corporation tax by 10%. Made big bets to spark investment; spent on infrastructure, new venture capital services, low-interest loans, tax incentives.
The result? An average of nearly 6% growth per year. Imagine that on the Thames.
And these are the kinds of policies now being deployed in the EU under the banner of the Covid Recovery Fund.
The third reason to believe we can do it is this: in the UK, we’ve never had a moment quite like this before. When the triple forces of the pandemic, Brexit and the global race to net zero coalesce to create a burning platform for growth.
During the pandemic, we emerged as a powerhouse in life sciences.
We also saw three quarters of firms adopting new technologies. And in 2020 alone, over 700,000 new businesses were created.
In the wake of Brexit, we have new regulatory and tax freedoms, and can make trade deals on our terms.
But the greatest prize of all flows from our world-leading position on decarbonisation. As Mark Carney announced at COP26, there is a wall of investment to fund decarbonisation – backed by firms with over $130trn in assets. A big chunk of it in London.
This isn’t about woke, it’s about wealth. British businesses are begging Conservative politicians to see the enormous economic prizes available to those who move fast.
All this means this is our moment.
In my last job looking at UK productivity, I wondered if low growth, low productivity, low investment might now be endemic in the UK. I thought the economy needed a shock – serious jump leads to start it going again. Well now we have three – this is a once-in-a-lifetime opportunity to change our economic trajectory. Every CEO I know says it. It’s why I took this job.
The government has a plan today. But it’s a plan for only 1.6%. It’s a plan that increases business taxes massively without reliefs for investment following suit. It’s a plan that funds green investment more than before but less than our competitors. It’s a plan that funds an inflexible apprenticeship programme while skills shortages continue to hinder growth. It’s a plan that stops immigration for skills we need but offers no alternative to get them.
There are however plenty of exceptions to this rule – moments where this government really has made bold interventions in pursuit of better growth.
The Super Deduction was a super-exception to the normal incremental approach to business investment. It was the boldness we need. Now, the 2023 end date is just too soon for investment cycles. So not only does it need extending; it needs to represent a totally new way of thinking about investment strategy.
The offshore wind market – based on contracts for difference – was the moment UK Government realised they could use their balance sheet to unlock high growth markets.
The adoption in the Budget of skills boot camps showed the government is realising how today’s world of skills really operates.
All these measures have one thing in common – they overcame orthodoxy in public policy. They represented bolder thinking. And that is what we need across government now. We need every cabinet minister and especially the Prime Minister leading a campaign for growth.
So, here are five new ideas to get them started.
First, we need to use this moment to transform private sector investment. So how about we leverage the 6-point Corporation Tax shock of next April to stimulate unprecedented business investment and innovation.
Any salesperson knows that a price rise is a great moment to introduce a discount. So, when the Super Deduction ends in March 2023, let’s replace it with a permanent Investment Deduction – a 100% tax deduction for capital spending. That way companies can straight away see the value of their investments – in a lower tax bill. I want to see Rishi outside a car dealership speaking to camera saying: you can pay loads more tax if you want to – or you can invest more, pay less, grow your business and serve your country!
Two, let’s talk about skills. We have a new idea for what are very new times.
We get why the apprenticeship levy was introduced. Apprenticeships were the only option for technical skills. But today’s reality is that we’ve got T-levels, Higher Technical Qualifications and the new game in town: boot camps. On top of apprenticeships.
The government then was also worried that UK businesses were spending too little on talent. Or that the training was poor quality. Or that we chose to import whatever we needed. Well, we agree but that all seems ancient history now.
Today, at every level, in every sector, and in every part of the country, firms are facing acute skills shortages. And the government is saying we can’t import them, we have to grow them. Overnight!
Skills policy hasn’t delivered what we need – partly because the situation has changed so drastically. What employers need are rapid-fire and high-quality skills. Right now! So do employees.
So, let’s stop solving a 2010 problem. Let’s start solving a 2030 one. We need more money from firms; funding more British worker skills; with a higher quality and more flexible offer.
It’s time to turn the Apprenticeship Levy into a Skills Challenge Fund.
We would allow businesses to buy training modules with their levy funds, not just full qualifications.
We would allow greater flexibility on the types of training.
And we would incentivise and reward firms that go the extra mile to train their people, with an upside kicker for any business that spends more than their levy.
With that in train, I will join any government minister urging any business to invest more in their people.
Third, we must go for green growth. We must accelerate our plans and target the green markets where we know the UK can lead the world.
For this, there are three things government must do now:
1) Close the public investment gap and spend competitively on the most important green growth areas. Energy efficiency, for example – where we need an extra £3bn a year to properly retrofit our homes and businesses and bring down everyone’s energy bills.
2) By the Budget, government must publish the hydrogen contract for difference business model. We’ve been waiting far too long. We need to show the world this is the place to put your money to work.
And 3) Launch a UK scorecard for green competitiveness to ensure government and business are joined at the hip in winning the economic prizes of decarbonisation.
Fourth, we need to take up the Brexit opportunity we now have on regulation. Contrary to popular opinion, we don’t want a bonfire of regulations for business, or divergence for the sake of it. This is about becoming something altogether smarter – and better – for our competitiveness: the most future-focused regulatory environment in the world. It’s a vision where Britain is first to win in new and growing markets, and first to adapt in existing ones. Transforming the UK into a global regulation rule-setter.
So, today, we propose that the Prime Minister sets up a new Office for Future Regulation. That may not sound so radical. But its mission would be.
The focus of this new body should be the big bets for our economy. Regulation would be future-focused – on new technology and new consumer realities. More agile – changing when out of date, allowed to do so now, no longer bounded by EU-wide consultation and compromise. It would be more proportionate, rooted in a better balance between investment and consumer protection. And finally, it would be more dynamic, allowing regulators to act quickly and decisively. Just as we saw with the vaccine when the MHRA enabled the UK to lead the world.
Fifth, let’s get serious about having the workforce for the future.
Last autumn business and government had a pointless quarrel over HGV drivers and butchers. The government ignored the obvious evidence that the UK couldn’t train enough new ones in time. They said tough luck – unless we close the borders, business will never change. Great rhetoric, poor results.
Shall we get serious now about how we can generate more of the skills we need at home – so we can rely less on immigration?
Nadhim Zahawi, the Education Secretary, is onto something with his new Unit for Future Skills, designed to look at the data of where skills gaps exist and in what industries.
But let’s go one step further.
Let’s supercharge that and build an independent Council for Future Skills.
It would take a holistic look at our workforce needs for today and tomorrow, and then work out how government policies can meet them. It would optimise training towards future economic demand. And it would give independent recommendations on where we’ll need visas to overcome shortages in home-grown talent. It would therefore set the Shortage Occupation List.
It sounds impossible: how could the Home Office and the DfE ever collaborate? But it’s now so obvious. And business can’t take the Government’s immigration position seriously until it shows us a real plan for home-grown skills.
So, five ideas on how to get serious about growth. And that’s just in one speech. Imagine if the CPS, the other think tanks, our leading academics, our finest entrepreneurs were all invited by government to join a campaign – bolder ideas for a faster-growing Britain.
Don’t get me wrong. It’s not all on government. This is a speech deliberately addressed to a political audience. But the CBI in the year ahead will be using every week, every month to promote serious growth to businesses across the country.
We will ask them to increase investment. In net zero. Innovation and digital transformation. Exports. Skills. In the health and wellbeing of their workforce. And we will gather them in clusters around the country to deliver levelling up the only way it can be done: by the private sector – through better skills, jobs and wages.
But to government, I say – now is not a time to lowball our ambitions. To settle for a new normal of low growth.
Better growth is the only real answer to our cost-of-living crisis, rising energy prices and high inflation.
Better growth ensures that we are not imprisoned in a cycle where we can’t afford what we need; and can’t tax higher to pay for it.
Better growth ensures that every one of our regions and nations can flourish. That a decade of low wages is not repeated. And that inequalities across the UK are reduced not increased.
So, let’s refuse to settle for policy conventions. The best prime ministers and the best governments haven’t – they have been radical reformers.
I believe that UK business leaders have never been more serious about growth.
After six years of reasons to wait, they are a coiled spring ready to pounce.
We just need politicians to make it so.
After a disappointing economic decade past, this is our second chance.
Let history show we seized the moment.
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