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Westlake Legal Group > Posts tagged "GDP"

Emma Revell: Young people socialising made Sturgeon “want to cry”. If only she got as upset over their debt burden.

Emma Revell is Head of Communications at the IEA

It’s not often some millennials gathering on a beach on a blazing hot weekend is enough to move someone to tears but that was the case for Nicola Sturgeon this week. The Scottish First Minister told a press conference that the crowds of young people gathered, apparently without physical distancing, made her “want to cry”.

I understand the frustration governments might be feeling at people pushing the boundaries of social distancing recommendations but to be driven to tears? Not at the untold damage being wrought on young people’s careers, not for the unfathomable debt they have been saddled with for the rest of their lives and probably those of their children, not for the unsuitable conditions many have been forced to work in for the last five months – those who were lucky enough to have jobs which can be done from home at least. But the simple act of meeting one’s friends outside is enough for a national leader to condemn a generation.

How can this be allowed to stand? The chance of dying from Coronavirus for 15-24 year olds is 0.5 for every 100,00 people. For 25-44 year olds it is 2.9 for every 100,000. So even accounting for a very generous definition of what Nicola Sturgeon meant by young – stretching it to the second category to include myself at a mere 28 years old – the chances of dying from Coronavirus, assuming you did contract the disease, are vanishingly small. The burden of the measures introduced to combat the disease however will fall squarely on the shoulders of the young.

The UK’s debt as a percentage of GDP exceeded 100 per cent for the first time since 1963 in June and that is only likely to increase with unemployment likely to reach record highs.

Whether or not you consider a pivot to homeworking a joy or a disaster is likely to depend on your age. While upper management in their 50s and beyond have enjoyed the chance to skip the commute and take a leisurely lunchtime walk as a break from their kitted-out home office, young people are much more likely to have struggled to share the kitchen table with multiple housemates in private rented accommodation without the luxury of a decade chair, never mind a home office.

New research from the LSE found that young Londoners living in shared accommodation throughout lockdown had just 9.3sqm of private personal space and that 37 per cent of those were sleeping and working in their bedrooms. Nearly half of those surveyed reporting having no suitable place to work at all.

That is those young people who can work from home in the first place. A total of 22 per cent of workers between 22 and 25 in their first full-time job were in low-paying occupations in the hardest hit sectors: retail and hospitality.

For those lucky enough to hang on to work, long-term home working will severely damage the chances of progression and team cohesion in sectors where so much relies on making connections with colleagues and getting to know the rest of the team.

A Zoom pub quiz on a Thursday night organised by a frazzled HR manager will only get you so far. Reduced job opportunities will limit the chances of progression into higher paid positions even further.

And it is not all about money. What about our social lives, or our love lives? If you are in your late 20s like I am, the tick tock of the biological clock begins to edge ever closer. Lockdown has damaged countless relationships, ending many either through enforced separation or proximity. How long are we expected to put our social lives on hold?

Where are our champions? During the EU referendum both sides of the campaign played up the benefits of their side’s victory for young people. Remainers argued that membership of the EU was essential for safeguarding the rights of young people to live and work across the continent, while Leavers wanted the next generation to grow up in full control of the laws of the land. Where are those campaigners now?

It is, of course, the elderly and those with underlying health conditions who are suffering the worst health outcomes from the pandemic. If rumours from Whitehall are to be believed, over 50s are at risk of losing essential liberties if a second wave of the virus hits Britain and of course maybe in middle age have been balancing the twin burdens of childcare and home-schooling with supporting older relatives who have been told to shield themselves.

No generation has escaped Coronavirus’ effect, but the young are uniquely positioned to bare almost no health risk yet will be living with the impact on careers, bank balances, romances, and mental health for the rest of their lives. It is time for politicians to remember that.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Neil O’Brien: No, more economic prosperity doesn’t depend on more social liberalism

Neil O’Brien is MP for Harborough.

Danny Finkelstein took issue with Boris Johnson’s idea of “levelling up” in the Times the other day. He reviewed the work of Richard Florida, a thinker dubbed the “patron saint of avocado toast” for highlighting the role of bohemian urbanites in driving economic regeneration.

Danny concludes from his work that, “Social liberalism and economic prosperity go together.” He argues that: “in order to match the success and power of metropolitan areas, non-metropolitan places need to become more… metropolitan.  The problem with the metropolitan “elite” isn’t that there is too much of it. It’s that there aren’t enough members of it, drawn from a wide enough background and living in enough places.”

I hesitate to disagree with one of the smartest columnists on the planet. But economic growth and social liberalism don’t always go together.

What about the Victorians, combining breakneck growth with a religious revival and tightened public morals? What about Japan during their postwar decades of blistering growth and conservative “salaryman” culture? Over the last 70 years, Britain has become more socially liberal as our growth rate has slowed.

Even in Britain today, it’s highly questionable. London is the richest and fastest growing part of the UK.  But where is opposition to homosexuality and pre-marital sex strongest? London. Where is support for censoring offensive speech highest? London.  The capital mixes liberal metropolitan graduates with religious immigrants. Its success is shaped by both.

Danny’s other argument has more important implications. Is it really the case other places must emulate London to succeed? Like other capital cities across Europe, London has grown faster than the rest of the country since the 1980s. The shift to an economy based on “office jobs” over has favoured the centres of larger cities.

But we shouldn’t get too carried away by the idea that hipster-powered megacities are sweeping all before them. For starters, there are successes elsewhere. Cheshire has high tech in a rural setting, with productivity and wages above the national average.  Milton Keynes likewise, because it’s easy to build there. Productivity in Preston has grown faster than average because it’s a transport hub with advanced manufacturing.

On the surface, large cities outside London have done well.  Since 1997, our 16 largest cities grew their GDP faster than their surrounding areas: Leeds grew faster than West Yorkshire, Manchester faster than Greater Manchester, and so on.

But on average, those cities saw also slower growth in income per head than their surrounding areas. In other words, people became more likely to work in city centres, but that growth was fuelled by people commuting in from smaller places around them. Their growth has been powered more by smalltown commuters than flat-cap wearing uber-boheminans.

It’s right that there are cities outside London that have things in common with it, and might benefit from similar investments. Lawyers in London will soon get Crossrail. So why have lawyers in Leeds waited 20 years for a tram?

But too often Richard Florida’s work leads politicians to focus on shiny cultural facilities. A cool art gallery in West Brom.  A national museum of pop music in Sheffield. It’s not just that these projects flop and close. It’s that they distract from two bigger issues.

First, most people aren’t graduates – so we need a plan to raise their productivity and wages too.

Second, places outside urban centres are perfectly capable of attracting high-skill, high income people – with the right policies.

Britain’s economy is unusually unbalanced compared to other countries.  Pre-tax incomes in Greater London are nearly 60 per cent higher than the national average, but more than 20 per cent below average in Yorkshire, the North East, Wales and Northern Ireland.  These imbalances mean our economy is overheating in some places and freezing cold in others, slowing growth overall. There are no major economies that are richer per head than Britain which have a more unbalanced economy.

But these imbalances don’t represent pure free market outcomes. It’s true that low-skill, low wages places can get stuck in a vicious circle. True that some places on the periphery have very deep problems. Nonetheless, the British state doesn’t do much to stop that – in fact it does a lot to unbalance growth.

Consider how we spend money. Capital spending on transport infrastructure in London is nearly three times the national average. Research funding per head is nearly twice the national average. Nearly half the core R&D budget is spent in Oxford, Cambridge and London. Spending on housing and culture per head in London is five times the national average. We’re “levelling up” the richest places.

We’ve rehearsed these problems for years, but not fixed them. Instead of chasing flat white drinkers, we need to find a cool £4 billion a year to level up R&D spending in other places to the levels London enjoys. Fancy coffee can come later.

Consider our tax system. Overall, the tax rate on business in the UK is about average.  But we combine the lowest headline rate in the G20 with the lowest capital allowances. The combined effect of this is a huge bias against capital intensive sectors, particularly manufacturing.

That in turn has a regional impact, hurting places more dependent on making things: manufacturing accounted for only five per cent of London’s productivity growth since 1997, but nearly 50 per cent in the north west. A hostile tax system is one reason Britain has deindustrialised more than any other G20 country since 1990, and why manufacturing’s share of the economy is half that in Germany or Japan.

Manufacturing should be a key part of levelling up outside cities: it needs space, not city centre locations. In English regions outside London, wages in manufacturing are about nine per cent higher than in services, and manufacturing productivity grows faster than the economy as a whole.  But Britain’s excessive focus on professional services makes it harder to grow high-wage employment in non city-centre locations.

Consider where we put our key institutions. In Germany the political capital was Bonn, and is now Berlin. The financial capital is Frankfurt. The Supreme Court is in Karlsruhe. The richest place is Wolfsburg, home of Volkswagen. There are major corporate HQs spread across the country. TV production is dispersed because central government is banned from running it.

In Britain, all these things happen in just one city. We’ve talked about this for years, but made little progress.  In recent years, we managed to move one chunk of Channel 4 to Leeds, and a bit of the BBC to Manchester. But that’s about it. Whitehall only wants to move low-end jobs.

The debate on levelling up is frustrating, because we know some things work, but we don’t do them. “Regional Selective Assistance” boosted investment in poor places with tax breaks and subsidies.  Thanks to evidence from natural experiments, we know it boosted growth. Yet it was allowed to wither.

I don’t want us to be just another government promising the world, then not delivering. Politically, it’s vital we deliver. Lots of people who haven’t voted Conservative before put their trust in us last year. It’s telling that the centre point of the seats we won is just outside Sheffield.

We won on a manifesto combining centrist economics, (50,000 more nurses) mild social conservatism, (ending auto early release) and national self-confidence (Getting Brexit Done).  Levelling up is central to all this. We promised voters steak and chips.  We could serve up avocado toast instead, but we shouldn’t be surprised if the voters don’t thank us.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Alan Mak: Reform capital allowances and R&D tax credits to fire up investment and create jobs

Alan Mak is MP for Havant and Founder of the APPG on the Fourth Industrial Revolution.

Improving Britain’s productivity is key to both our economic recovery after Coronavirus and enhancing our global competitiveness post-Brexit. The best lever for firing up Britain’s productivity is incentivising more investment in the latest IT and software, new plant and advanced machinery – all proven catalysts of growth and efficiency. Failure to direct billions of pounds into these fundamental building blocks of our economy will hold back our recovery.

The State cannot be expected to do all the heavy lifting, especially given the Government’s substantial spending commitments to help the country through the lockdown and beyond. Instead, it must be businesses that take the lead, especially SMEs who have traditionally made up the “long tail” of unproductive companies.

Rather than a safety-first approach of hoarding cash, postponing investment and hunkering down, businesses must be incentivised to invest more in the coming months. This must be an economic recovery powered by bold investment decisions that create jobs, upgrade technology and boost productivity.

The dampening effect on capital expenditure (capex) and investment caused by Coronavirus is already large and destructive. One investment bank estimates that £23 billion has been slashed from this year’s capex budgets already, whilst the Bank of England predicts a 26 per cent drop in business investment for 2020. In 2009, as the financial crisis erupted, the fall was 16 per cent by comparison. Some of the country’s biggest employers such as BP and HSBC have already started cutting investment.

In practice this means IT systems and software – now at the heart of every business – being used for longer. Machines normally replaced every decade will have their life extended. Trucks and vans will be allowed to age. Outdated buildings that offer no room for new employees will be kept on. Research and development (R&D) could stall.

Reductions in investment not only have negative consequences for our country’s GDP, jobs and productivity, it also damages our capacity for R&D and our reputation as a nation that innovates for the future – key to our leadership of the Fourth Industrial Revolution.

Reforming and adapting two existing incentive schemes – the Annual Investment Allowance and the R&D Tax Credit – would have a major impact in reversing this decline in business investment and productivity.

Introduce a new Annual Investment Allowance ceiling for green or digital investments

Capital allowances enable a business to deduct the cost of qualifying items from their profits, lowering their corporation tax bill. This incentivises investment in key productive goods from machines to laptops.

The Annual Investment Allowance (AIA) is the annual cap on such deductions and its level has varied dramatically in recent years from £25,000 in 2012 to £500,000 in 2015. Until December 2018, the AIA was £200,000 but it was raised to its current £1M level from January 2019. The £1 million level is due to expire this December.

To encourage a green recovery and investments that focus on digitisation, the AIA could be allowed to fall back to the previous £200,000 ceiling, except for certain types of capital expenditure that achieve environmental or digital goals which would still benefit from the £1 million special ceiling. Replacing a diesel-powered machine on the factory floor with one powered by electricity, or digitising a production line by adding new software powered by artificial intelligence (AI), could be examples of investment that would be rewarded by the new special AIA ceiling.

Alongside the introduction of a special £1 million ceiling, the scope of what can be claimed through capital allowances should also be expanded to take account of the growing digital dimensions of every business. For example, digital tools purchased on a subscription basis (such as monthly website hosting costs) should benefit from relief not just one-off investments in physical goods (such as buying a new machine).

Increase R&D tax relief rates for SMEs and widen the scope of the reliefs

R&D tax reliefs support companies that work on innovative projects in science and technology, and enables the cost of qualifying projects to be reclaimed from HMRC. They’re especially effective for digital start-ups, who get a tax break and much needed cashflow back for critical work.

From April this year the relief rate is 13 per cent, but the lion’s share of R&D tax relief is claimed by large, research-intensive businesses. SMEs can currently claim up to 14.5 per cent in certain circumstances, but incremental increases such as this do not have a dramatic effect on investment appetite.

Often the most cutting-edge innovation, especially in the digital sphere, is carried out by small teams and growing start-ups – not just multinationals. To encourage more micro businesses and SMEs to pursue more R&D, new and much higher rates of relief should be introduced. For example, a rate of 25 per cent for SMEs with fewer than 150 employees, and 35 per cent for SMEs with fewer than 50 employees.

What qualifies for relief must also be broadened to include more of the digital tools that software developers use, including software testing tools and data analytics software. In addition, cloud storage fees, user experience development work and the cost of buying data sets needed to train algorithms for AI-driven start-ups should also be tax deductible.

Britain is currently 19th out of the 37 industrialised nations in the OECD when it comes to R&D investment, spending 1.7 per cent of GDP against the OECD average of 2.4 per cent. To match world leaders including Germany and Japan, who invest over three per cent, we must urgently update and expand our R&D tax relief regime.

This is the second in a three-part series on how to boost our economy after Coronavirus.

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Peter Lampl: To build social justice and get the economy working, schools must open fully in September

Sir Peter Lampl is founder and Chairman of the Sutton Trust and Chairman of the Education Endowment Foundation.

Pubs, pubs, pubs. If you were to believe most of the ministerial and media rhetoric during these last few weeks, you would conclude that getting them open was the biggest priority to revive this country post-Coronavirus.

While no doubt there are many out there thirsty for a pint, this is a huge distraction. The fact is that the single best way to both kickstart the economy, and to fix the damage that has been done to our social fabric, is to guarantee that schools open in full this September.

There can be no ifs and buts. The damage that was done by the (quite understandable) decision to close down our education system is so wide-ranging it is almost inconceivable. The cost to both GDP and the life prospects of our children will take an age to recover.

And so we must be absolutely clear that, as ministerial focus pivots from the immediate emergency, the threat to the NHS and saving many thousands of lives, on to the economic crisis opening up before us, the education system must share equal top billing.

The damage done to educational outcomes and to social mobility is frightening. The Education Endowment Foundation (EEF) – which I chair – has estimated that some ten years of progress closing the attainment gap between our most deprived young people and their wealthier classmates has been reversed by closing schools for three months.

The efforts of most heads and teachers has been heroic, but the provision of online teaching has been patchy, and the ability of school staff to reach those children most in need of their help has been stretched at best. A University College London study found that 20 per cent of pupils (two million) still do less than one hour of schoolwork a day at home, or none at all, while many private school students are doing six hours.

Research from the Sutton Trust, which I also chair, showed that of the work that is received back from pupils, 50 per cent of teachers in independent schools report they’re receiving more than three quarters of it.   This compares with only eight per cent in the least advantaged state schools.

And during this crisis, there have been too many people playing politics. The Government has said one thing, heads another, unions another, councils another. Parents have been left in the middle baffled – while their kids lose out to a frankly terrifying degree. Messages have been mixed and this has undermined confidence in the system.

No more.

The Department for Education, the Treasury and Downing Street must speak with one voice on this. The economic revival they so desperately seek goes hand in hand with nurseries, primaries, secondaries, colleges and universities reopening to the greatest degree possible.

We can’t get parents back to work without their kids being looked after in primary or nursery schools. And we can’t hope to achieve growth unless schools and colleges and universities are producing people ready to work. In the longer term, the cost of the damage to the country’s wider prospects of the education system misfiring will be in the billions.

The building blocks are starting to be put in place. The announcement last week of £1 billion to spend on tutoring, and on catch up support throughout the summer and into next year, is really welcome. Both the EEF and the Sutton Trust are excited to be working with the Government to make sure this money has the greatest possible impact.

And the announcement of a change in social distancing from two metres to one metre – although again, framed to allow pub, restaurants and hotels to open – creates a great opportunity for schools. No longer will heads be restricted to 15 kids in a classroom. At one metre social distancing – and recognising that, especially in primary schools, the risks are very low indeed – we can, and must, move towards having all or almost all children safely back into schools.

No-one – principals, lecturers, heads, teachers, students, parents – can be left in any doubt that the Government will be laser-like in its focus on this. The promise of support, funding, and clear, timely advice to all parties must be forthcoming.

Ministers must also be clear about the extent of their ambition: this must not be a half-way house. All schools must be open, all lessons taught by teachers, exams must be sat, sports fixtures played, uniforms worn, and extra-curricular activities enjoyed.

It is to be welcomed that we are going to have a detailed plan at the end of this week to achieve this ambition. We hear that the Prime Minister is “deeply frustrated” that we haven’t had as many kids back in yet. But government rhetoric must be matched by action, and steadiness of nerve.

There is a long time to go between now and September. The Government will experience many huge problems in the coming months. It will find itself fighting many economic and healthcare crises, and it will be forced to publish many more no doubt horrifying financial figures. There will continue to be vested interests arguing that we must remain on pause, or that we should focus on other areas instead.

The DfE must ensure that education does not get lost in all this noise. Where efforts are required across government, this must happen. Ministers and senior civil servants must fight for the attention of Downing Street and the Treasury. No one can be allowed to forget how much rides on getting school gates open at the end of the summer holidays.

I’ve spent the past 20 years working to improve social mobility and on transforming the life chances for young people. We cannot allow this virus to deflect us from this most important agenda. There is no time to waste: schools and their students need certainty about September now.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Neil Shastri-Hurst: Turkey and Hungary cannot be allowed to continue to contravene the principles of NATO

Dr Neil Shastri-Hurst is a former British Army Officer, surgeon, barrister, and senior member of the Voluntary Conservative Party in the West Midlands.

Determined, bold, and ambitious. All adjectives that could be used to describe the vision NATO’s Secretary General, Jens Stoltenberg, put forward in a speech at the beginning of June. And yet, barely a mention in the newspapers. But whilst Covid-19 continues to dominate the news agenda, Stoltenberg’s speech should not be dismissed. It has the potential to significantly alter the position from which NATO seeks to operate.

NATO has been a powerful military alliance since its inception. National and international threats have not diminished over the last 70 years or so; rather they have grown. The current pandemic should not lure us into a false sense of security. The importance of a strong and effective military alliance, through the auspices of NATO, is fundamental to upholding the democratic principles we hold so dear.

However, in setting out a roadmap for the organisation for the decade ahead, its Secretary General has fixed his sights beyond that. He aspires to something much more ambitious. A shift to focus upon diplomatic and economic levers. A shift to operating more globally; beyond its current North Atlantic milieu. In essence, a shift to operating more politically.

Stoltenberg’s words will have been warmly heard in Washington. It was precisely this type of refocusing that the United States’ administration was pressing for when the alliance leaders met for the 70th anniversary summit on the 4th December 2019. It clearly acknowledges the growing threat that China plays in the wider global security challenges. That said, achieving this ambition will prove much harder than articulating it.

Whilst the focus of the Secretary General’s speech concentrated on the construct of a more political NATO – a NATO “using a broader range of tools”; both military and non-military – this ambitious vision can only be looked at in conjunction with the broader challenges facing the Alliance. Such a paradigm shift would necessitate a change in mindset from its member states.

NATO’s burgeoning inbox is frequently inundated with concerns posed by Vladimir Putin and Russian adventurism. This threat has not retreated. Putin’s posturing and strongman rhetoric continues to present a substantial risk to the Alliance. However, in recent years, there has been the development of a fresh danger. A danger posed by member states themselves. From Viktor Orbán in Hungary to Recep Tayyip Erdoğan in Turkey, there has been the emergence of a cohort of leaders who style themselves in the Putin mould.

The bedrock of NATO has always been its shared values. The alliance has been bound through a pledge of collective defence: each member state, a democracy that upholds the virtues of individual human rights. For the majority of the 29, this remains the case. However, a small, but vocal, minority within the alliance has strayed from this path. The principle of collective defence has diminished in importance for these nations.

The schism created by Erdoğan and his ever closer relationship with Russia are well documented. But Erdoğan is not the only leader who has chosen to pursue a more nationalistic political path. Casting one’s gaze to Hungary, we see a country that was once an exemplar of post-Cold War success; a former Communist regime that had succeeded in achieving a strong democracy.

But times have changed. Orbán has adopted an increasingly authoritarian domestic policy platform. However, from NATO’s perspective, it is Orbán’s adoption of a fragrantly pro-Russian foreign policy agenda that is even more worrying: one only has to consider Hungary’s attempts to progressively block and disrupt the cooperation between NATO and Ukraine in order to illustrate this. Whereas the sage heads sitting at the NATO top table recognise the malign influence of a Putin led Russia, Orbán and Erdoğan are amongst a powerful subset that willingly fail to do so.

It would be misleading to suggest that NATO, and its members, have always upheld its founding principles to the letter. Historically, member states have not always been governed under truly democratic principles. That said, the internal menace posed by the pro-Russian, authoritarian rule of some of its own members arguably presents the greatest threat to NATO’s integrity that it has suffered to date.

The importance of NATO cannot be underestimated. As recently as 2016, the Alliance set out its central mission: “to ensure that the Alliance remains an unparalleled community of freedom, peace, security, and shared values, including individual liberty, human rights, democracy, and rule of law”. However, such a shared set of values operates on trust.

This brings me back to Stoltenberg’s vision for NATO 2030. An ambitious vision must be coupled with a compelling argument that member states’ defence and procurement strategies must be centred upon NATO’s intended direction. In a post-pandemic world, with the global economy having taken a battering, putting forward a persuasive case may be all the harder. Maintaining the two per cent minimum of GDP contribution has historically been challenging for many members. The reality is that, with competing demands upon treasury departments, a not insignificant contingent will formally rescind upon their commitment.

But that may be the least of NATO’s problems. The majority need to stand up to the minority and challenge its offending behaviour. Nation states such as Turkey and Hungary cannot be allowed to continue to operate in contravention of the principles of the Alliance. The Washington Treaty contains no provision to suspend members who do not act within the democratic ideals of NATO. However, that should not deter action against those states that fail to adhere to these; political and economic sanctions, for example, may well have the desired effect in the long-term, if not short-term.

And so, I end where I started. This is a determined, bold, and ambitious vision of NATO in 2030. It will however require an even more determined, a bolder, a more ambitious argument to be put forward in order for it to succeed. To have any chance of success, NATO itself will need to reform. It will need to assure member states that the collective Alliance remains true to its founding principles. It must convince its members to stand up against those who show a disregard for human rights or seek to pursue a pro-Russian agenda.

There is a Russian bear sitting behind the desk of the Kremlin; for the survival of NATO we must not let its cubs play in our midst.

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Graham Gudgin: To meet its infrastructure ambitions, the Government should spend more on capital investment

Graham Gudgin is Chief Economic Adviser at Policy Exchange.

The unprecedented problems facing the Government have overshadowed one of its most striking innovations. Brexit, Covid-19 and Black Lives Matter demonstrations have all relegated to the media sidelines the attempt to reverse a decade of austerity with a major increase in spending on public infrastructure.

The scale of the reversal of previous Tory and Coalition policy by the Johnson Government is large. Although spending on capital relative to the size of the economy since 2010 was never lower than during the Blair years, or indeed the Thatcher-Major period, what is planned for the current parliament takes it to new heights.

Even if we accept the estimates of the Office for Budgetary Responsibility that actual spending always lags behind plans, real spending in each of the next four years will be the highest ever recorded in the UK. Capital spending is projected to rise to three per cent of GDP, a level not reached since the 1970s when government was heavily involved in house building, except briefly during the banking crisis.

Although it is not easy to make definitive international comparisons, the OBR estimate that UK investment in infrastructure has long been below other richer economies, but the planned investment will bring annual investment up to the OECD average. What is striking about this is that it is backed by borrowing at a time of high public indebtedness.

Before the Covid pandemic the debt to GDP ratio had risen to 86 per cent (compared with under 40 per cent before the banking crisis). Despite that, the 2019 manifesto promised an extra £100 billion of new investment during this parliament, effectively doubling public spending on economic infrastructure including roads, broadband and flood defences. The huge current surge in public sector debt due to the measures combatting the pandemic have not deflected these plans.

The question of whether this is sustainable or wise is taken up in new report from Policy Exchange, titled Why the Government should spend more on capital. It says that the Government should spend more on capital investment. The case was already strong before the Covid-19 crisis and has been strengthened since, as financing borrowing has become more affordable.

The report highlights the importance of taking advantage of the present macro-economic environment afforded by low borrowing costs, to provide stable – and sizeable – funding for new infrastructure through an increase in capital spending by the public sector. Additional capital spending, in excess of current fiscal rules, would be sustainable and affordable.

The reasoning is straightforward. Interest rates are so low that government can finance its borrowing with little strain on taxpayers to service the interest payments on its bonds. The pandemic has helped in this respect since interest rates on bonds have fallen further than the low rates of last year.

Moreover, the Bank of England has also renewed its money-printing Quantitative Easing programme. This means that more than the current 23 per cent of government debt will be held in the Bank’s Asset Purchase Facility rather than held by the private sector.

Since the APR returns much of the debt interest to the Treasury the cost of borrowing will be even less. Much of the repayment of this debt can be delayed well into the future. The Policy Exchange report advocates a fiscal rule that targets the thing that matters, namely cost of debt servicing – a Debt Service Rule – rather targeting a debt-to-GDP ratio or caps on current and capital spending.

The pandemic may also remove for a few years the labour constraint that slows infrastructure development and raises wage and other costs. The report argues that worries about the inflationary impact of extra spending were wide of the mark even before the pandemic. Covid-19 has made such worries less appropriate.

The report argues that extra spending can be justified on two main grounds. Spending is needed because it has been low in the past, leading to congestion on roads and rail and a slow roll-out of broadband. Extra spending is in part an economic necessity to keep the UK competitive and attractive to investors but can also be justified as an amenity in the sense that we all prefer uncongested transport and good access to broadband even if the gains to the economy are limited.

Secondly, investment provides a general stimulus to the economy and is timely in the light of the Coronavirus but can also be justified In the longer term assuming the investment is well planned and cost-effective.

Boosting demand has of course assumed an urgency through the need to repair the economy in the wake of the pandemic. Here shovel-ready projects must be the focus and Robert Jenrick has asked for ones which can be delivered within 18 months. Since 2021 was already planned to be the year in which capital spending took-off with a rise in capita spending of £6 billion, the previous plans are fortuitous.

The new situation may bring private-sector projects forward, some with government financial support, but we cannot expect new projects worth more than a billion or so and the economic impact, although useful, will be small. The expectation is that many of these projects will be in green energy and located in Scotland where it is hoped that UK backing for such projects will be well publicised as an advantage of the union.

There are a host of areas where infrastructure plans could meet the desire of the Government for shovel-ready projects in the post Covid-19 economy. These include electric vehicle charging points, high-gigabit broadband and green projects as well as health-related infrastructure such as green walking and cycling routes, improving and adding to, public parks, sport, leisure and swimming facilities.

Additional infrastructure is often advanced as a way of “levelling-up” the regions, but the Policy Exchange report shows that living standards in the devolved regions and the North of England are close to the UK average once housing costs are taken into account and not far below those in London.

It is the ability of regional economies to support their own living standards that is the problem, but this is a problem for tax-payers in affluent regions rather than for the populations in the North.

New investment may help here but we should not hope for too much. An infrastructure-led development was tried in the 1960s and 1970s with limited effect. New infrastructure is clearly needed in parts of the North and Midlands but should not be built ahead of need.

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Richard Holden: Here in Durham, Labour ponder tinkering with statues – while local people yearn for jobs, security and pay

Richard Holden is MP for North West Durham.

Chatterbox Café, Marketplace, St John’s Capel, Weardale

Grabbing a sausage bap (on brown, butter and brown sauce) and coffee (black, no sugar) from the Chatterbox Café in St John’s Chapel yesterday, I remembered it was Father’s Day, and that my dad had come up to campaign with me in the very spot where I was sitting last year. So a phonecall and a natter about how him and mum are managing – and I as no longer the least favoured child.

Like millions of other families across the country and thousands in North West Durham, the lockdown has really affected him and my mum. While she’s been doing more shifts as a ward clerk at the local community hospital back in East Lancashire, my dad has had to shield with my grandma, for whom he’s a carer and, therefore, socially distance from my mum, even in their own home.

As we slowly emerge from the global health pandemic element of Coronavirus though, for the country and my constituents, it’s the barrel of its economic consequences that we’re now staring down.

The biggest fall in GDP ever last week was made only too real last Thursday for many of my constituents. Back in my slowly opening-up constituency, I visited the large local employer who’d emailed the day before.

It makes the aluminium parts that go into the wings of planes (which allow a flex of up to 45 degrees – so when you see those plane wings move, it’s the men and women of Consett who’ve made that possible). They take on apprentices, and their highly skilled local workers earn, on average, just under £30,000 a year, with their most experienced workers earning about £40,000.

Due to the collapse in travel, the knock-on hit on the airlines, the further knock-on hit on aircraft leasing and the subsequent knock-on impact, therefore, on aircraft manufacture, they’re going to have to lay off half of their workforce – over 100 people.

Speaking to their plant manager on site on Friday, it was clear that, if it hadn’t been for huge investment in recent years and major efficiency improvements, the plant would now be under threat of closure. As it is, they’re in a position of being able to survive, and they have my commitment to do everything I can to help them secure more work from wherever possible.

This economic challenge that we’re now facing is at least as significant as the health one we’ve just faced. But the Left has barely mentioned it. Most of them are fine – all the polling shows that many of Labour’s most loyal graduate voter base in cities will have been on full pay, working from home.

Indeed, the activist left appear to have been most active at trying to ignite a culture war. Even Labour-led Durham Council has announced they are conducting “a review of all statues and monuments” a couple of weeks ago, as it simultaneously ignored the pleas of local businesses while coning-off previously open disabled parking bays in Crook, Consett and Willington, in order to prevent people from being able to get to the newly re-opened shops last week.

On a national level, after an early barrister’s bounce presenting his opening case, Keir Starmer has started to flap under cross-examination himself. Trying to keep the Labour membership, Labour councils such as ours, Rebecca Long-Bailey and the more extreme elements of the National Education Union happy by refusing to support the Government as it tries to get schools back makes him look increasingly tin-eared to the concerns of ordinary voters.

My constituents are also increasingly concerned about wanting to get ‘back to normal’ in terms of our NHS – with many having seen long-planned operations cancelled – so they want to get hospitals back to normal as soon as possible, too.

But the biggest concern is about the economy and, to my constituents, that means opportunities to work in good, well-paid jobs and local businesses that are able to thrive. Without demand returning, times are going to get increasingly tough. When it comes down to it, “levelling up” is certainly about improving health and education but the driver of that, as Boris Johnson said during last year’s Conservative leadership campaign, is the “other wing that Labour always forget about” – the strong and vibrant economy that pays for it all.

As we’ve seen over the last few weeks in terms of trade deals internationally with Japan, Australia and New Zealand, we’re well on the way. Britain’s approach to the EU, by which we seek a free trade agreement but will clearly take control back of our own borders, money and laws, is the right one to give certainty about what we’re after too. That’s solid, welcomed and good for the long-term.

During the next few weeks or so, though, the Government faces immediate challenges on how we drop a gear to get the economy accelerating again, as we move beyond direct state support from grants and furlough. When they do so, Ministers should consider the businesses small and large, from tourism to transport at the heart of those changes. The primary change we need to make is to switch from saying “what’s allowed to open” to instead specifying “what in the interest of public health needs to continue to be restricted.”

Good jobs are the foundation of a solid economy and society. As Starmer sits on the fence, pulled to a stalemate in a perpetual tug-of-war from both sides of his party, while locally Labour wastes time and taxpayers’ cash on trying to mastermind its own mini-cultural revolution, the overwhelming majority of what we must do is to tackle the impact of Coronavirus on the economy.

Ensuring that we get demand going to save as many jobs and businesses as possible, and deliver for the fathers and families of North West Durham and across our country must be our number one priority. At times like this, we need to remember the words of Iain Macleod, the only other person I’m aware of who entered politics after attending my old grammar school in North Yorkshire, who spoke at the Conservative Party Conference exactly 60 years ago: “The Socialists can scheme their schemes, and the Liberals can dream their dreams, but we in the Conservative Party have got work to do.”

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Andy Street: With more shops opening again, here are high street lessons we can learn from the last recession

Andy Street is Mayor of the West Midlands, and is a former Managing Director of John Lewis.

On Monday, September 22, 2008, I sat in a coffee shop in Victoria, surrounded by the weekend’s papers. Barely a week before, Lehman Brothers had collapsed. Days later Halifax, the nation’s biggest mortgage lender, faced going bust. As Managing Director of John Lewis, I read the alarming headlines and thought: “so what are we going to do?”

John Lewis was one of the UK’s best-known retailers, and I was a relatively-newly installed MD, having taken over in February 2007, just as the economy started its long slide downwards to recession. We needed a new plan.

Now, as shops reopen this week, retailers find themselves in a similar position, after the Office for National Statistics revealed that UK GDP had plunged by 20.4 per cent in April.

As Mayor of the West Midlands, I know that our region must plan its way out of an economic downturn that has been far more sudden than 2008. Back then, at John Lewis, we chose to not only invest in the values that had always driven us to success, but to seize the opportunity to reshape the business – to choose our own future. I believe the West Midlands can do the same thing today.

Of course, leading one business, in one sector, through a downturn is vastly simpler than the task facing us now as a nation, but as we reopen our shops there are undoubtedly lessons to be drawn from the last time recession hit the high street.

This week’s careful re-opening of more shops is an important step in returning our lives to some form of normality and a vital part in restarting an economy that has been put into hibernation throughout the pandemic. First and foremost, it is vital that we reopen our high streets safely, to give everyone the confidence to return.

Getting this right is crucial to the nation’s recovery post-Covid 19. Retail directly employs nearly three million people. Nearly two thirds of the UK economy is made up of consumer spending – of which retail drives the biggest share.

It also plays an important social role in our communities. For the British, shopping has always been a social activity, from the village shops that act as local focal points to the high street stores that can seem more like family friends than corporate brands. Seeing shoppers returning safely to our high streets will provide a tangible step on the road to recovery.

After 30 years on the high street, retailing is certainly in my bloodstream, and when John Lewis re-opens on Thursday I won’t be able to resist returning, as a shopper, to perhaps pick up a few items from the Solihull branch.

The economic road ahead will be tough. The recession that will no doubt come as a result of coronavirus is very different to the ‘credit crunch’ of 2008. Then, we suffered 18 months of economic figures which worsened almost daily, reaching its nadir with TV images of shellshocked Lehman’s staff leaving their New York HQ, their belongings clutched in boxes.

This crisis has unfolded in a much shorter timeframe, brought on by the necessity to protect people from Covid-19. However, there are parallels between these two downturns that can help us plot our way back to prosperity.

Looking back to that day in the coffee shop, and the weeks that followed, I understand completely the tough decisions retailers now face. It was a painful time. John Lewis’s profit was down 40 per cent and people were losing their jobs.

The question was what to do. Should we hunker down and manage decline, or come out boldly with a plan to move the business forward and secure jobs into the future? I recall that decision came at a meeting at John Lewis in Reading. We went for the latter.

We would continue to invest in our core business – including opening new shops. But boldly, we decided to ‘place our chips on red’ and put our trust in technology, to build a business model for the future – in our case, online. Our difference was an online business linked to our shops with the same brand values.

As a region, the West Midlands can take the same approach, by investing in the strengths that have always delivered growth here, while seizing new opportunities for the future. The Government has done a good job so far in protecting the economy – with the short-term furlough scheme, business rates holiday and other interventions. This gives us a start.

But we must continue to invest in our core business – and that means backing investment in the infrastructure of our country, like building HS2, expanding metro lines, opening new stations and providing new, greener transport options such as cycling infrastructure. We have to continue to support people’s basic need for housing by continuing to reclaim derelict brownfield eyesores for development. We must continue to invest in digital infrastructure, such as the roll-out of 5G.

But then we must invest in the future of business, as John Lewis embraced online trading. For the nation this means investing in the jobs and economy of the future. For the West Midlands, that means taking the lead in developing new electric vehicles and the battery technology that is so critical to their success. John Lewis boldly pioneered multichannel retail – a concept which is now commonplace. The West Midlands can turn to electric Jaguars and a Gigafactory mass-producing the batteries to power the future.

At John Lewis, our plan aimed not just to get us through the recession but to power us into a period of sustained growth. Crucially, this was embedded into the business by engaging our partners and colleagues in the new concept.  Here in the West Midlands, on a much grander scale, our seven local authorities, businesses and communities are drawing together in the same way to develop our own Regional Economic Plan. Unity of purpose is vital.

There is no doubt that our economy is about to change again, and that change will be hard for many people, impacting on jobs and businesses. We must repeat what I sought to do in John Lewis from 2008 – by investing in the core business and the jobs that depend upon it, while identifying and seizing the new opportunities that are so critical to the future.

The reopening of Britain’s traders this week is an important step on the road to recovery and we need consumers to responsibly and carefully return to the high street.

Napoleon famously described us as a “nation of shopkeepers”. He was right – retailing is in our DNA. Now that those shopkeepers are once again putting out the “open” sign, let’s all play our part and help reawaken our economy.

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David Green: How a new corporate structure can get Britain back on track after Covid-19

David Green is Chief Executive of Civitas.

After the economic downturn of 2008, it took five years to get back to pre-recession GDP. The Coronavirus crisis is likely to produce a much sharper drop in output and the Government needs to be thinking actively about how best to encourage a resurgence of enterprise.

Its first thought will be to cut corporation tax and short-circuit a few regulations that impede enterprise. But there is a risk that such measures will not produce the well-paid employment throughout the land that the Government wants.

If we look around the economic landscape, not all economic activity leads to the output of goods and services, and the provision of well-paid jobs. Two activities have drawn criticism, not only from those who dislike markets as such, but also from the strongest supporters of markets.

The first is tax avoidance. The OECD has been concerned for several years by the growing tendency of international companies to reduce their tax liability by using sophisticated accounting devices. Its ‘base erosion and profit shifting’ (BEPS) project has tried to reduce the problem, so far with only modest success.

The second is business activity that is extractive rather than productive. For instance, the buying and selling of commodities, currencies, or shares for the sole purpose of making money from the transaction can hardly be called productive. It would not be feasible to prevent such arbitrage but there is no reason to treat it in the same way as enterprise that adds value by producing goods and services.

One approach would be to create a new legal framework for companies that would more effectively harness self-interest to service of the public good.

For most of the post-war period American companies have been able to register with the tax authorities as a ‘C’ corporation or an ‘S’ corporation. A ‘C’ corporation pays corporation tax, but an ‘S’ corporation does not. All profits and losses ‘pass through’ to the shareholders who must not exceed 100. If shareholders take profits in the form of dividends then ordinary income tax is due. This provides an incentive to keep profits invested in the company.

Our Government could adapt this model for the UK by creating a new corporate structure – an enterprise company. Such companies would be required to have their headquarters in the UK and would not be liable for corporation tax – so long as profits were retained in the business as reserves or reinvested in the production of goods and services.

Without corporation tax there would be no need for separate taxing of capital investment via the capital-allowances regime. Investment in plant and machinery would a business expense like any other. However, enterprise companies should still be eligible for research and development tax credits. Profits could only be distributed as dividends, in which case recipients would be liable for income tax as individuals. The use of tax havens would be prohibited and companies must be involved in producing goods and services.

Furthermore, no organisation that bought and sold shares, commodities, currencies, property, or derivatives merely to make money from the transaction would be eligible. Shareholders must all be individuals. No other corporation could hold shares in an enterprise company, which would severely reduce mergers and acquisitions revealed by numerous economic studies to be destructive of value.

Finally, as Hayek proposed, all shareholders should have an annual opportunity to decide whether their personal share of the profit is ploughed back or taken as income. This would not be a majority decision. It would be a personal choice exercised by each shareholder.

Knowing that they could take their share of the profits out once per year would have two effects. It would encourage individuals to invest, and it would incentivise executives to come up with better ideas for investment than buying back the company’s own shares or increasing their own remuneration.

HM Treasury will have to forgo some of the £50 billion raised in corporation tax, but with this new kind of corporate structure we can anticipate the emancipation of a new generation of entrepreneurs whose ingenuity and drive is more likely to spread well-paid, tax-paying, jobs throughout the land.

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Sam Robinson: How can the UK pay off its Coronavirus bill? Environmental taxes and wealth reform.

Sam Robinson is a researcher at Bright Blue.

Economists say there’s no such thing as a free lunch, and the same is true of lockdown.

The Coronavirus crisis is expected to cost the Government £300 billion, as we are set for the deepest and sharpest recession in 300 years.

The Treasury has reminded Rishi Sunak of this fact in no uncertain terms.

A leaked document puts this year’s deficit in the ‘base case’ scenario at £337 billion, and points out that tax rises and spending cuts of between £25 billion and £30 billion a year will eventually be needed to right the ship.

Significant spending cuts are not a plausible option in these circumstances. With every Whitehall department save Health, the Home Office and DFID seeing its budget slashed over the last ten years – some by more than 50 per cent – there is little financial room for further substantial cuts.

The sacrifices of key workers throughout this pandemic has made demands for higher pay for public sector workers and more money for the NHS all but impossible to resist.

Public support for austerity is no longer there; a clear majority of voters, including Conservative supporters, want to see spending on public services increased.

As the Treasury briefing makes clear, it is likely that the Government will instead have to break its manifesto pledge not to raise taxes.

At present, the Government is desperate for revenue and therefore likely to raise one or more of the broad-based taxes: income tax, National Insurance or VAT.

But if higher taxes are now inevitable, the Government needs to think about how revenue can be raised fairly and effectively.

It needs to stop putting off the difficult questions a major tax-reform programme requires.

Bright Blue has launched a new major project on tax reform in the 2020s to explore the options.

The UK has a narrow VAT base compared to many other countries, making the system complex, inefficient and costly.

Indeed, HMRC estimates that (assuming no behavioural changes) the Government could have raised an additional £53 billion in 2018/19 if goods and services that currently benefit from a zero or reduced rate of VAT were charged at the standard rate.

But it would be a waste if Government were to just take the money and run without thinking more deeply about how indirect taxes can support wider objectives.

Taxes on consumption are much maligned, but there is evidence that ‘sin taxes’ on unhealthy food and drinks work – not just in mathematical models, but also where they have been tried.

Indeed, the plastic bag tax and sugary drinks levy have both had the intended effects.

Environmental taxes in particular are ripe for reform.

Britain has an uneven approach to taxing different forms of polluting activity.

But where environmental taxes are higher, emissions have been falling faster.

There is evidence that carbon taxes more broadly are an effective way of moving towards net zero: the IMF concluded in a report late last year that a $35 per ton carbon tax would be very nearly sufficient for the UK to meet its Paris summit pledge on emissions.

There is a strong economic case to be made for looking again at consumption and environmental taxes.

In any case, what could be more conservative than asking consumers to take responsibility for the social cost of their consumption and using the tax system to protect our natural heritage?

In the longer term, wealth taxes are arguably the most promising way of obtaining revenue on a large scale.

In the UK, private wealth as a proportion of GDP has more than doubled since the 1970s, yet revenues from taxes on wealth have remained at two per cent of GDP.

But reforming wealth taxes needn’t just be about plundering the rich.

There is a way of reforming wealth taxes that improves both efficiency and equity.

Income from work is taxed more heavily than income from wealth, and this is already distorting the economy: whereas an employee earning £100,000 pays £40,000 of that in tax, an owner-manager taking most of their income as capital gains and taking advantage of Entrepreneurs’ Relief could pay as little as £22,000.

Such large tax differences may go some way to explaining the large rise in incorporations over recent years.

These differences also have a bearing on whether companies decide to employ someone directly or as a self-employed contractor.

Shortly after his election victory, Boris Johnson proclaimed: “We believe that talent is evenly distributed throughout our country but opportunity is unfairly distributed”.

Any conservative who cares about social mobility should recognise the role wealth has to play in this, particularly inheritances.

The value of inheritances – which are very unequally distributed – has doubled in the past 20 years and will double again over the next 20.

A litany of exemptions and reliefs in inheritance tax means that it is the richest estates who benefit most.

Around 20 per cent of the value of the smallest estates is subject to a tax relief, while this is over 70 per cent for the richest estates.

Agricultural and business property reliefs disproportionately benefit the largest estates, such that the effective average tax rate on estates with net value over £10 million is less than 10 per cent – compared with double that for most estates.

In the wake of Coronavirus the overriding objective for Government is to generate revenue, and quickly.

But it would be a terrible waste if taxpayers are squeezed without any thought going into how taxes could be reformed to deliver more social mobility, more efficiency, and better environmental outcomes.

Yes, there is political risk for the Conservatives in breaking their manifesto pledge.

But there is also an opportunity to use taxes to shape a One Nation conservatism that will bring the country together after this crisis passes.

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