Local tax powers will unleash enterprise
SINCE TAKING over as chief executive at the Centre for Social Justice, I have been driven by a mission to open up the corridors of power to the grassroots, giving a voice to those on the front line of the fight against poverty in Britain. This week we made a massive step towards achieving that goal and released our report on UK productivity –
Productivity has for too long been seen as an abstract economic concept, a preserve of Bank of England economists and Treasury officials. Few people understand what productivity actually means, let alone how we solve the ‘productivity puzzle’. Our report breaks the mould by putting productivity at the heart of social justice, and giving it a human touch.
The report concludes a year-long research project, led by our chairman Iain Duncan Smith and a working group made up of representatives from industry, education, scientific research and finance. Their analysis found some worrying trends; a systematic level of under-investment in capital and innovation, a decline in educational and skill attainment among a large portion of school leavers and a regional divide between London and the rest of the country.
The divergence in productivity growth between London and the North worsens the deeper you dig into the data. Workers in Yorkshire earn 74p for every £1 earned in London, students in Yorkshire are 5.5 percentage points less likely to achieve an A* to C grade in English and Maths GCSE, and whilst Yorkshire receives just 3.2 per cent of national spend on infrastructure, London receives 54.2 per cent.
What can be done to reverse this regional trend? It will take successive governments implementing an integrated strategy that requires co-operation across multiple departments. The CSJ advocates a radical programme of devolution paired with a more concentrated targeting of funds for local growth schemes.
More power needs to be devolved to local government, allowing communities to support industries that they are world-beaters in. Mayors should be given powers to set and collect business rates as well as council tax. The UK has one of the most centralised tax systems in the world, where most of our taxes are collected and spent in Whitehall. Canada, Sweden, Germany, the Netherlands and USA all have more devolved tax systems, and all have more productive economies.
Giving local government more power will help divert money to projects that are beneficial for local businesses and residents. We surveyed a collection of firms of varied sizes and from around the country whether they preferred public money spent on local infrastructure or big national projects. Well over half preferred money to be spent on local road and rail rather than schemes such as high-speed rail.
Local growth funding is complex with multiple silos, each managed independently within several departments in London. We advocate for the creation of a signal regional growth pot, called the Regional Growth and Productivity Fund. This will help better target more than £26bn worth of regional growth funding for parts of the country that need support.
These steps will begin to address the regional divide, and with reforms to our vocational education system, support for the further education college sector, more funding for research and development, simplification of the business tax system to encourage entrepreneurs, better support for students who want to go into STEM subjects, and the implementation of a good employer accreditation scheme, productivity growth will return to the UK.
If we return productivity growth to the pre-crisis rate of two per cent, our economy will be 25 per cent more productive by 2025. A larger and more productive economy will mean a lower debt burden, turning the budget deficit into a surplus, but most importantly reducing poverty across the country. Productivity growth is the only way to generate long term wage growth. Only wage growth for the low paid in the UK will help reduce worklessness, social breakdown and poverty.
This is why I work at the CSJ, because we have the opportunity to fight for the people who most need support. Our report on UK productivity will reach the upper echelons of Government and will hopefully provide them with a template for a radical overhaul of British economic policy-making.