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Theresa May’s statism is the wrong way to build a more prosperous post-Brexit Britain

John O'Connell
Theresa May
The Prime Minister has signalled a shift away from free markets (Source: Getty)

Labour has lurched to the hard left and Ukip does not currently seem equipped to capture the significant number of voters on lower incomes who are worried about immigration and the impact of globalisation.

So it is understandable that the Prime Minister is seeking to seize the coveted centre ground. For that purpose, Mrs May’s speech in Birmingham last week hit all the right notes: crackdown on tax avoiders; state intervention in business; an industrial strategy.

While there might be a political logic to this, a more heavy-handed state is not the right course to take. Free markets have lifted billions out of poverty across the world and a competitive economy means more prosperity.

History – and data – shows us that excessive government intervention simply leads to higher prices and worse outcomes for taxpayers. This is not to say that the government gets it wrong in each and every circumstance, but in order to build a more dynamic and prosperous economy, it is generally better for politicians to step back and let enterprise and competition thrive.

Jeremy Corbyn
Jeremy Corbyn has abandoned the centre ground (Source: Getty)

When politicians see problems in sectors like housing or healthcare, they will always want to do something to help. But usually the problems they are seeking to solve are rooted in state intervention in the first place. In the case of housing, it is absurdly stringent planning laws that mean we simply cannot build the homes we need where we need them. And while the health service remains a single payer system, demand will always outstrip supply and costs will continue to spiral.

Having an industrial strategy may seem sensibly proactive, but it is nigh on impossible to know what industries and technologies will be important in the future. These emerge when innovators provide products and services that people want, making our lives easier and businesses more efficient. So an active industrial strategy will almost certainly end in failure.

Read more: It’s pure hubris for politicians to think they can “rebalance” the economy

The wider political context as Britain decides how we leave the EU may also tempt the Prime Minister to build a more interventionist state. There is a real danger the referendum is interpreted as a plea for a more insular and protectionist economy. To some extent this reaction is understandable: globalisation is of huge net benefit to the country and our economy, but that does not mean there are no “losers”.

But a protectionist response is again the wrong way to try to help those who feel left behind. Instead, we have to improve education for our future generations and ensure that we have a workforce with the skills needed to adapt to a changing global economy. We should also scrap HS2 and instead spend the money on better value infrastructure projects that improve road and rail across the country.

Sink hole
The money pledged for HS2 would be better spent on less extravagant road and rail projects (Source: Getty)

And we need a fundamental reform of the tax system. It is little surprise that nobody believes that others are paying their fair share – the tax system is so complicated and riddled with loopholes that almost nobody fully understands it. So the Autumn Statement is the perfect time for the chancellor to signal long-overdue comprehensive tax reform.

We can be the world leaders in reforming the taxation of companies so that it is suitable for the modern economy by announcing a plan to abolish Corporation Tax, Capital Gains Tax and other taxes on capital income, to be replaced with a single tax on distributed income. We can make taxes on labour more honest by merging Income Tax and National Insurance, with safeguards in place for those who may lose out. Doing this and eradicating loopholes is also the only way for politicians to truly “crack down” on tax avoidance.

Read more: The chancellor's fiscal reset: A golden opportunity to slash living costs

A simpler, more transparent tax system with lower taxes on families and businesses would be the best possible signal that the UK will use the opportunity of leaving the EU to become more open, free and prosperous.

We usually want politicians to match their rhetoric with action – with Theresa May’s recent comments, maybe that is not the case this time around. The Autumn Statement should set out a plan for a more liberal economy that lets markets work and leaves more money in the pockets of those who earned it.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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