6 July 2022

What should be on the new Chancellor’s to do list?

By

The Chancellor Nadhim Zahawi has already made a splash on the morning media round, just hours after his sudden promotion. Was it horrible or fortuitous timing? Whatever it turns out to be, he used his broadcasts to tease some of the policies he might undertake while in No 11. Of course he touted the need for dynamic growth, ways to fight the cost of living crisis, and pitted himself as a tax cutting Chancellor. Now where have we heard those phrases before?

There’s only so many ways a Conservative Chancellor can describe their desire to put the country on strong economic footing, and how they intend to go for growth. We’re bound to be subjected to the same buzz words. But crucially, what we need now is a diversion from the actions of the former Chancellor. For all the times that we heard a ‘low tax Conservative’ was in No 11, I’m not sure anyone was able to find him.

Now, with a new reign starting there is a possibility we might see those tax cuts come into effect. The Prime Minister himself said that he anticipates that now Rishi Sunak has resigned it will be easier to cut taxes. It may be that Nadhim Zahawi is bounced into sudden tax cuts as he figures out whether or not he’ll be a ‘yes man’ or a ‘no man’. He’s already indicated that he will look at scrapping the corporation tax rise and is looking at cutting income tax.

But just as one shouldn’t go to bed angry, perhaps one shouldn’t make sweeping economic changes in response to political crisis. No matter who the Chancellor is, it is much more important that they are a critical thinker – someone who can carefully examine the pros and cons of economic policy. Not one that parrots party lines without any real action or, worse, creates actively harmful policies based on a misunderstanding of economics.

For too long we’ve seen the teams in No 10 and No 11 throw out taxpayer money to different pet projects. We’ve had inaction on simple economic reforms like indexing income tax brackets to inflation to fight fiscal drag. We’ve seen harmful tax rises on jobs and employment through the rising of National Insurance. This must change.

So, the message for this Chancellor and whoever may follow is clear: with a level head, good advisors, and a strong understanding of market economics and incentives, this country can be put back on track.

It would be easy to write out a wishlist of economic policies for the new Chancellor to tackle. Think tanks across the board have ideas sitting waiting. And yes, they include things like scrapping the corporation tax hike to increase investment and encourage growth. The Chancellor should make sure that policies are targeted and simple – not complex and lacking direction. He should resist calls to cut VAT, raise National Insurance and Income Tax thresholds higher to keep up with inflation, and ensure that any government support goes directly to those who need it most.

But most of all, what the country needs most is a fundamental change in culture in the Treasury. A refusal to think of the dynamic interplay between tax and growth has kept this country trapped in a cycle of low productivity and growth for too long. When you cut taxes, employ targeted support for the worst off and allow people to keep more of their own money you can unleash an entirely new cycle of prosperity. One that is sorely needed.

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Morgan Schondelmeier is Director of Operations at the Adam Smith Institute.

Columns are the author's own opinion and do not necessarily reflect the views of CapX