Mordaunt knows that tax cuts would not fuel inflation
The new prime minister needs a pro-growth and unapologetic, pro-business economic vision. It must be based on a credible fiscal strategy that keeps the public finances in shape and reduces the budget deficit over time, plus a supply-side agenda that revitalises small firms and helps people to live well.
It is a strategy that requires pushing back against Treasury orthodoxy plus ensuring the Bank of England keeps inflation at bay. Our economic institutions need to evolve, do their job and serve the people.
Boris Johnson’s government failed to have a coherent economic strategy. Under his Chancellor, taxes went up – not down. What was promised was not delivered. An obsession with the budget deficit developed.
That needs to change. The decision to increase National Insurance last autumn was economically unwise and avoidable. While a new PM can take decisive action, they also need to ensure people are realistic about what can be done immediately.
Johnson broke the Brexit deadlock. Now it is up to the new leader to resolve the challenges and deliver on the opportunities that lie ahead.
It is a process, not a one-off event. UK economic growth and productivity slumped following the 2008 crisis. This fed the Treasury’s view that low growth necessitates higher taxes because much of the budget deficit is structural. Johnson and Sunak failed to push back against this misplaced thinking.
It is like being in a hole and digging deeper.
We face rising inflation and an economic slowdown that could become a recession. A tighter monetary policy is needed to curb inflation. With confidence collapsing and domestic demand weakening, sensibly focused tax cuts are justified. I suggested to Boris Johnson he provide “timely, targeted and temporary” help to those most in need. He enacted this essential measure. People on low incomes are suffering. Further such help will be needed this autumn.
But other tax cuts are still needed and can be done without triggering inflation, provided they too are timely and targeted. Cut taxes further on fuel. Cancel the planned hike in corporation tax, while importantly, dovetailing it with attractive investment allowances.
The basic rate of income tax can be cut without triggering inflation, but the timing needs to be aligned with other developments.
The supply-side agenda has to focus on all the I’s: investment, innovation, infrastructure and getting the incentives right, with low taxes and smart regulation. This will help reduce inequality and inspire younger people. The UK has more universities in the world’s top 100 than the rest of Europe combined. We need to leverage off this. Likewise, our
‘We have more universities in the world top 100 than the rest of Europe combined. We need to leverage off this’
vocational training needs to be energised, as it should go hand in hand with the green agenda that can be central to regional policies.
This poses the question, who will be best to deliver this economic vision, not give into groupthink, focus on growth and not debt servicing costs, and truly champion the UK globally? For me, it’s Penny Mordaunt.
Her instincts are aligned with the agenda necessary to finally deliver economic growth, she understands the opportunities Brexit provides to position the UK globally in a radically changing world economy, and she has shown herself an effective cheerleader for the UK on the world stage – championing free and fair trade. It is these qualities that the UK needs, it is these and more that she possesses, and it will be these qualities that will make her a great prime minister.