By Matthew Lynn
4:44PM BST 19 Apr 2015
38 Comments
Protecting the NHS. Improving education. Fighting climate change. Devolving power to the regions. Controlling immigration. Lots of very familiar issues feature in the main parties’ election manifestos, to be debated in the run-up to May 7.
Even some fairly minor issues will get their few minutes in the spotlight. The Greens have helpfully raised the issue of rabbit hutches, and whether they are cruel or not. The Liberal Democrats are promising to investigate a cycleway to run alongside the proposed HS2 high-speed rail link from London to Birmingham. If you don’t have much else to do, you could easily fill up the coming days uncovering all kinds of minor and fiddly initiatives that one party or another is cooking up.
And yet, many equally important issues will not be discussed at all. If you just take the economy, there are five major discussions, each with significant choices to be made, that are just as crucial as anything any party is talking about. Such as? Tax simplification. The euro crisis. Robotics. Our trade deficit. And an ageing workforce.
One of the striking aspects of the political debate is how wealth creation seems to have been largely forgotten. There are plenty of promises of more spending, and much debate about whether we should move a bit faster or a bit slower on reducing the deficit. But how might we create a richer economy? Or what challenges might threaten our prosperity? No one seems bothered. But there are plenty of trends that we should be thinking harder about. Here are five:
One of the striking aspects of the political debate is how wealth creation seems to have been largely forgotten. There are plenty of promises of more spending, and much debate about whether we should move a bit faster or a bit slower on reducing the deficit. But how might we create a richer economy? Or what challenges might threaten our prosperity? No one seems bothered. But there are plenty of trends that we should be thinking harder about. Here are five:
First, tax simplicity. Whether you think the state should be spending 35pc or 45pc of GDP, which is about the range of options on offer, our tax system has become horrendously complex. It started under Gordon Brown, but has continued under the Coalition. Tolley’s Tax Guide now comes in at a whopping 16,000 pages, more than even the smartest accountant can comprehend.
Complexity is a far bigger problem than tax avoidance, which all the parties bang on about endlessly, even though the UK is hardly a country with much of a culture of dodging taxes. All the evidence suggests simpler tax systems generate more cash for the Treasury, and make it easier for businesses to grow. High but simple taxes are still better than high, complex ones – simplification is more about stripping out red tape than cutting the overall amount paid.
Second, the euro. Britain’s biggest economic problem by far is that our largest neighbour and biggest trading partner has locked itself into a dysfunctional currency system that is trapped in a depression. The biggest risk over the next five years is a chaotic collapse triggered by an accidental Greek exit from the currency. Who knows how much damage that could do to the UK economy? It could knock 3pc or 4pc off our GDP. There is not much point in the UK just crossing its fingers and hoping for the best. Greece clearly won’t make it within the single currency.
We should be coming up with a plan for it to get out, with generous loans from the US, the IMF, and indeed ourselves, to get the country through a difficult period. It is going to happen one day, so it might as well happen in an orderly, planned way. If we put that forward, we would be taking out the number one economic risk we face.
Third, robotics. If you haven’t already got one of the whizzy new robot vacuum cleaners, you soon will. It will – sort-of – tidy up your house. Robotic chefs that will whip up a meal for you are on the way, while the driverless car that will take the kids to their ballet classes and collect you from the pub after a few drinks is just around the corner.
Robotics will soon be the biggest technology since the internet, and arguably a lot bigger. But both create two challenges. How do we make the UK a world leader in what will be a huge industry? (One answer – being one of the first countries to license driverless cars would be a help). And how do we cope with the inevitable disruption to traditional careers that robotics will create, and re-skill people so that the transformation does not simply create lots of unemployment? Neither will be easy – but the earlier you start discussing it, the better.
Fourth, our trade deficit. The UK’s trade deficit hit £2.86bn last month. As a percentage of GDP, it is now above 5pc, and it is higher than at any point since the Lawson boom of 1989. Now, you can argue that in a world of floating exchange rates, and with free movement of capital, trade deficits don’t matter any more. And maybe you’d be right. The trouble is, do you really want to bet your economy on that theory? Every country that has run deficits on that scale has been plunged into a crisis sooner or later – Spain was the latest example, with deficits of close on 10pc of GDP before the euro crisis overwhelmed it.
The truth is, we’d be wise to start planning ways to get that down, targeting a cheaper currency if necessary. While we are at it, we might want to have a discussion about whether we want near-zero interest rates forever, with all the potential distortions of the market they create. Or would we prefer an economy that rewarded saving – which, as it happens, might have a smaller deficit as well?
Finally, an ageing workforce. As life expectancy increases, and pension systems come under greater pressure, we will need to do more to encourage those in their sixties and seventies to work longer. Some evidence from the US shows they can be more productive than younger people, because they have had more time to develop the soft skills such as communication and teamwork that are valued by companies. But businesses will need to be encouraged to get them back into the workplace, and pension systems may well need to be reformed to ensure it is worth their while. How productive the those aged 65-75 are, and what percentage of them are in employment, may well be the key determinant of how prosperous our economy is in the 2020s.
Right now, only 10pc of the over-65s are working nationally, although it is 12pc in London – and it is probably no coincidence the capital is one of the richest parts of the country. If we could get that up to 20pc, or even 50pc, it would make a huge difference to GDP.
Each of these issues is probably more important than most of the stuff being discussed during the campaign. They are certainly more important than rabbit hutches or cycleways. They might even wake up an electorate often disengaged from politics. But the main parties are remaining silent on all of them.
