Insanity is doing the same thing over and over again and expecting different results, so the saying goes. If that is true, Britain’s political class must be losing its mind. Faced with persistent economic stagnation, the highest youth unemployment in Europe and embarrassingly high levels of debt, they continue to reach for the same interventionist policies that have already been tried, tested and failed.
Speaking at Bayes Business School on Tuesday, Chancellor Rachel Reeves’s second Mais lecture was disappointing. She does, perhaps, deserve some credit for her honesty and identification of the problems the country faces. Reeves said that ‘since the global financial crisis, the UK has experienced the sharpest slowdown in productivity growth in any G7 economy’, and that Britain’s ‘system of land use planning was a direct obstacle to investment’.
While her assessments were correct, the solutions proposed in the Mais lecture were, at best, unambitious.
On productivity, it is true to say that growth has been very slow since the financial crisis. On a per capita basis, economic growth has been slower than in the US, the EU27 and Germany in that time. The slowdown in productivity growth since the 2010s has been our worst for 250 years. Average earnings growth has remained stagnant, and GDP per head today is nearly £11,000 lower than it would have been if pre-2008 trends had continued.
Part of this can be attributed to the collapse of productivity in the financial sector itself. The enormous growth in regulation and, consequently, risk aversion is undoubtedly part of the problem. And yet, it had no mention in Reeves’s speech.
On housing, Reeves was correct to identify Britain’s planning system as an obstacle to investment. Highlighting the reintroduction and raising of mandatory housing targets, opening up ‘grey belt’ land and restricting the influence of local planning committees are small steps in the right direction.
Labour pledged to build 1.5 million homes in England during its term. However, the Office for Budget Responsibility predicts that 1.3m homes will be built before the end of the decade, across the entirety of the UK. Of those 1.3m homes, the OBR estimates that only 13% will be built due to Labour’s planning reforms.
Rachel Reeves claims that ‘growth today relies on an active and strategic state’. She is wrong. The state is bigger and more active than it has ever been before. Taxes and spending have risen to their highest level as a proportion of national income in British history. Rather than expanding the state even further, the Chancellor ought to dismantle the supply-side barriers holding Britain back.
Even more disappointing, but entirely unsurprising, was the Green Party Leader Zack Polanski’s speech at the New Economics Foundation this week. ‘A Green government would bring in rent controls. We would stop the chokehold of rip-off rents and breathe life back into our communities,’ he said. Certainly a surefire way to wreck the UK’s housing market even further.
Economists are divided on every issue, except rent controls. The empirical evidence is overwhelming, rent controls reduce the supply and quality of rental housing, decimate construction and halt mobility among private renters. It leads to the misallocation of housing, long queues and hurts the very people they are intended to protect.
Of course, Polanski also argues for lots of tax rises. For energy companies, he argues for a ‘robust tax that claws back every single pound of reckless profiteering’. Demanding a new tax every time a company makes a profit is ridiculous. There are few companies who would invest where politicians are extraordinarily hostile before a development even happens, and then are punished for success. We are facing a global energy crisis, and the only solution is to simply increase supply. The Net Zero fairytale will only make us poorer.
‘For a truly progressive government a wealth tax should be a day one priority’, he says. Wealth taxes have been tried and subsequently abolished almost everywhere. Support for the policies used to be an eccentric fringe position. They are administratively difficult to implement, impede the formation of capital and drive out wealth. We are already seeing wealthy people leave in their droves, many of whom are not British and have no reason to be loyal to a country hellbent on punishing success.
Britain does not suffer from a lack of ideas, but an overabundance of bad ones. Reheated, repackaged and relentlessly reapplied bad ideas. Ever-expanding state intervention, punitive taxation, meddling regulation; the consensus among the Government and popular political class is clear, and will continue to drive the country down its current, ruinous path.
There is another path. One that prioritises growth, rewards enterprise and removes the barriers that hold back innovation. It is not that we do not know what works, but that there are so few willing to do it. The question becomes unavoidable: who, if anyone, will stand up for Britain?
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