The word recession has not been thought about for years, but after the Bank of England announced that we should expect it by the end of 2022, it has been placed at the front of people’s minds. Of course, external factors do play a massive role in this; the Russian invasion of Ukraine has disrupted global trade, and supply chains are still recovering from Covid-19. These do not tell the whole story, however. Britain’s economy has been failing for well over a decade now, suffering from low growth, low productivity and low ambition. Blame for this lies with the governments who got us here.
Even if we ignore the pandemic, we have been in a dire state for years. Between 2010 and 2020 productivity growth was only 0.3 per cent and real GDP only grew on average 1.4 per cent per year. In comparison, in the 1990s our economy grew by 2.6 per cent per year and in the 1980s it was 3.1 per cent. This was not even a global phenomenon – during that same 10 year period America grew by 2.3 per cent.
It is not surprising that this has been the case; the Conservative party has long been tinkering rather than governing. Take an area like taxation – the party will point to things like reduced rates of corporation tax and the increases in the basic allowance as their great achievements. But these achievements are almost a decade old and are riddled with drawbacks that undermine their success.
For example, when George Osborne cut the rate of corporation tax to 17.5 per cent, he simultaneously changed the expensing rules so less goods were able to be subtracted from tax bills making investment harder. For many resource heavy companies this actually meant their bills increased. Indeed, corporation tax is also going back up to 25 per cent from next year (or 28 per cent for banks).
Moreover, the results of the income tax reforms are slowly dying because the effects of inflation are not being addressed by updating the bands.This means we are being taxed more each year as more of our income becomes taxable at higher rates.
There’s also a sheer lack of commitment to bold ideas. We have seen recently the abandonment of the Oxford-Cambridge Arc, which was meant to contribute £111bn to our GDP. The same fate happened to HS2 which now will not service anywhere near as many towns as it was initially conceived to.
House building is where the complete lack of idea is shown best. Back in 1951 the Tories considered housing to be “the first of the public services”, but today that idea is lost. From an economic point of view, it’s clear that to create growth we need to make it easier for people to move to where the best jobs for them are. That is presently impossible because the cost of living in our most expensive cities is extortionate.
The Tories have long tinkered with the system providing subsidies for first time buyers, and introducing new rules to try to get a few more homes built. However, none of this is enough. The fundamental truth remains that housing has become more unaffordable every year for decades.
The Conservative party doesn’t have a plan anymore. Our economy is growing slower than our competitors and we lack a strategy to change this. What we need is someone, anyone, prepared to do what it takes to create growth and make ourselves a more productive nation again. If this doesn’t happen, recessions are only going to become more and more common.