Allister HEATH
The Chancellor wants to replace central control with policies that harness the power of the market
Pandemics, wars and national catastrophes pose a particular challenge to free-marketeers. It is not just that they require an enormous dose of centralised, government intervention, policies that are anathema to smallstatists in ordinary times. An even greater problem is that central planning and huge expansions in welfare are extraordinarily addictive.
“Temporary” programmes have a horrible tendency to become the new normal, which is why major shocks usually do more to advance socialism than Left-wing election victories or the scribbling of ideologues, as FA Hayek once noted. It is incumbent upon libertarians to help devise workable, politically possible, incremental solutions that allow countries to rediscover economic freedom when a calamity ends.
It is hard to undiscover the magic money tree once its existence has been acknowledged; the public’s mindset can shift quickly when they begin to enjoy “free money”, and the “losers” from any attempt at unwinding emergency expenditure tend to shout more loudly than the “winners” (in the form of taxpayers). This has plagued and ruined Conservative governments throughout history, forcing many to pursue proto-socialist policies: even before the virus hit, the tax burden in Britain had hit a multi-decade high.
Rishi Sunak, to his great credit, understands this. He was forced to spend in a gargantuan way during the first phase of the crisis, insuring the entire economy against the fastest and largest recession in centuries, but he is determined not to allow coronavirus to usher in a permanent Milibandite settlement. He also doesn’t want to fall into the trap of dismissing the scourge of unemployment, as a few Tories once did: the only question is one of means, not ends. Do we want markets to help us out during the next phase of the fight against the virus or do we want socialism?
His speech yesterday is best understood as the first stage in his attempt to chart a conservative, freeish-market route out of lockdown, fighting to create jobs in extremely difficult circumstances. He wants to unwind command and control, and replace it with a bottom-up form of assistance. He is still intervening in an extreme way – any Chancellor would be at this stage – but is trying to shift and time limit support in a manner that doesn’t attempt to buck market forces.
Mr Sunak’s biggest decision was to end furlough in October, rather than delaying it endlessly, as the likes of Spain have done. While he believes in the “nobility of work”, there is no point in giving people “false hope” by propping up doomed jobs forever. Encouragingly, he is no supporter of Franklin D Roosevelt’s economics.
Instead of replacing furlough with massive public sector make-work schemes – the apocryphal example involves paying people to pointlessly dig holes before filling them up again
– he is trying to support the private sector by cutting the cost of employing staff, helping workers retrain and turbocharging the housing market.
His Kickstart scheme may or may not work, but it’s better to subsidise getting young people into employment or training than adding them to the public sector payroll. Ditto traineeships and apprenticeships. The danger here is that the unemployment crisis is shifted to older workers.
The Chancellor outlined two major, welcome tax cuts: a closely targeted reduction in VAT aimed at a food, accommodation and attractions sector that will rebound if it survives long enough, and an excellent reduction in stamp duty (the latter will hopefully become permanent, but it suits Mr Sunak for it to be treated as temporary by the market). Some firms will cut prices; others will keep the difference, saving many from bankruptcy. The cut to stamp duty ensures 90 per cent of home purchases will be tax-free. It will be hugely positive for the economy and is exactly what a Tory chancellor should be doing. The £1,000 per employee bonus for firms rehiring furloughed staff should be seen as a third tax cut: the equivalent of lower employers’ national insurance. All of these interventions go with the grain of the market.
Mr Sunak’s “eat out to help out” restaurant meal subsidy scheme is more gimmicky. It undermines the basic free market principle of Tanstaafl – “There Ain’t No Such Thing As a Free Lunch” – popularised by science fiction author Robert A. Heinlein in The Moon is a Harsh Mistress, and subsequently by Milton Friedman. Do we really want the state to half pay for our kebabs? Of course not, but given that Mr Sunak is willing to end furlough, we can at least take comfort in the certainty that he will axe this scheme before we all get too used to taxpayer-subsidised meals.
There are also at least two upsides to “eat out to help out”. It will infuriate the authoritarian health fanatics who hate the idea of people enjoying cheap food, while showing that the Tories care about self-made, often immigrant entrepreneurs. It acknowledges that many restaurants will go bust, but empowers consumers to choose which survive. The policy is therefore far more pro-market than simply subsidising all restaurants equally.
The same is true of his “green jobs”. If one is going down that route, better to allow consumers to choose their own projects and providers; the command-and-control solution would be for the state to spend everything itself. These “green” jobs are normal jobs, and the beneficiaries – suburban homeowners and double-glazing fitters – part of Johnson’s Tory coalition.
The question, of course, is what next. Mr Sunak’s Autumn Budget will need to be a blockbuster. It will need to include deregulatory initiatives and further tax cuts. It was reassuring to hear Boris Johnson yesterday decrying the Opposition’s call for a wealth tax, and the PM’S new slogan contrasting the Tory “jobs, jobs, jobs” to what he described as Labour’s “tax, tax, tax”.
As they face a tsunami of economic pain over the next few months, the Tories must remember that no country has ever taxed itself back to full employment. Free markets work; collectivism doesn’t. Yesterday’s statement was a good first step; Mr Sunak’s next challenge will be to unleash an entrepreneurial revolution to create the millions of genuine, unsubsidised jobs Britain will be crying out for.