UK must cut taxes or face ‘decades of lost growth’

Liz Truss’s taskforce also attacks net zero rules, low productivity and planning strangled by red tape

BRITAIN is facing two decades of lost growth because Rishi Sunak has failed to incentivise work by piling taxes on families, according to an economic taskforce set up by Liz Truss.

The Growth Commission said the current Prime Minister had pushed the economy into a low-growth trap, with GDP per head expected to grow by just 1pc annually over the next 20 years.

It said Britain’s high tax burden was partly to blame with onerous net zero regulations, weak public sector productivity and planning rules that had left developers strangled by red tape.

So-called GDP per head was only 0.1pc higher in the second quarter of this year than its pre-covid level, according to official data.

The Growth Commission said this showed “living standards are stagnating” as it urged Chancellor Jeremy Hunt to slash taxes and implement sweeping reforms to planning, welfare and the public sector in the Autumn Statement.

It warned: “If we carry on the same way we are likely to continue to stagnate with rising taxes or borrowing or both to pay for ever growing public spending. This won’t work.”

The Commission added that a six-year freeze in income tax thresholds introduced by Mr Sunak would be the equivalent to a 9p increase in all rates of income tax by the end of the decade.

Rachel Reeves, the shadow chancellor, said separately yesterday that addressing stealth taxes would be a priority for an incoming Labour government, comparing fiscal drag to a Government that was “picking the pockets” of working people.

She said: “The taxes I’m most concerned about are the taxes on working people. It does concern me that people on average earnings are paying more in tax, are dragged into higher tax brackets, and every time somebody gets a pay rise, there’s a chance that they’re going to be dragged into an even higher tax bracket so you know the pay that’s supposed to keep up with the rising cost of living – 40pc of it is then being taken in taxes.”

The Growth Commission urged Mr Hunt to end frozen tax thresholds by 2024-25, as it warned that continuing with the policy would push the tax burden to a new peacetime high before the end of the decade.

The Commission called for a benefits shake-up and a review of public sector productivity, which remains below pre-pandemic levels, to revive growth.

It claimed that its package of reforms could add 23pc to the economy, putting an average of £11,300 more in every person’s pocket by 2044.

The Commission renewed its call for corporation tax to be slashed from 25pc to 19pc and 15pc by 2040. It also urged Mr Hunt to continue a flagship business tax break he introduced that allows companies to offset 100pc of the cost of investment in qualifying plant and

machinery in one go against their tax bill, saving up to 25p for every £1 spent.

Douglas Mcwilliams, co-chairman of the Commission, said: “Short-term decision-making has delivered stagnation. We cannot ignore this and we can’t sustain it. We can see 20 years of stagnation with a record tax burden. We need policies to be genuinely long-term and aggressively target growth.”

Ms Reeves said making full expensing permanent was also a priority, although she poured cold water on any prospect of cuts to the headline rate.

She said: “I want to give businesses greater certainty about the tax regime, not chopping and changing with tax policy every year or two.”

It came as figures from the New West End Company showed that Chinese visitors shopping in the West End of London are spending almost 56pc less than they were before the pandemic, amid calls for the tourist tax to be scrapped.

Young people in the UK today must be wondering what the point is. The point of working hard at school, getting a good job and saving up. It’s not like they will be able to afford a home anyway. Forever denied the opportunity their parents took for granted, owning a home is a distant dream. Demand massively outstrips supply, especially in the cities, and our bureaucratic planning system means that only a trickle of new homes arrive on the market each year.

Helping people on to the housing ladder is important, but the benefits of planning reform go far wider. Factories, laboratories, shops, offices, roads, railways and ports are all held up by the bureaucratic monolith that is the British planning system. It’s not just young people who are hurt by this, our whole economy is stuck in a low-growth mire of our own making.

New research from the Growth Commission reveals that by fixing our planning system, we could grow the economy by more than 6pc over the next 20 years. UK GDP in the second quarter of 2023 was 1.8pc higher than the fourth quarter of 2019. But per capita growth has been almost non-existent: Britain is stagnating.

How do we fix it? Instead of a haphazard, increasingly complex approach to planning laws and development with the complaints of the few obstructing the needs of the many, Britain needs a forward-looking approach. By introducing zoning, we can designate areas suitable for development, and presume in favour of building for all but the most extreme cases. This approach, already a success in Australia, would increase supply and help young people on to the housing ladder while protecting green spaces. It would also put an end to ridiculous decisions such as the move to block permission for a data centre on the site of an old quarry by the M25.

Our current planning system prizes bureaucracy over common sense. When a dispute arises, people wanting to build enter a lottery of appeals and counter-appeals that drags on for years, and they almost never win.

This has produced a vast fatberg of delayed projects, clogging up our system and holding back growth. The solution is not to rubber-stamp every project, as critics of reform often allege. It’s about introducing a logical, evidence-based process to reach the right decision quickly. The nation that built the Industrial Revolution looks on with envy as the rest of the world reaps the benefits of ultrafast railways, new nuclear power stations and onshore wind farms as our own infrastructure creaks. Endless delays to planning permission mean costs spiral and ambitions are curtailed. Entrepreneurs starting businesses are forced to relocate for better transport links, enhancing regional inequality. Polluting fossil fuel plants are kept open in the absence of low-carbon alternatives. Projects that could be providing cheap, emissions-free electricity to local businesses remain unrealised. Introducing a streamlined process for large projects of national significance like these could reduce delays by 75pc, laying the groundwork for growth. These proposals may appear simple but government after government has failed to make the difference. We must look at this again with renewed political will. As the Growth Commission’s report proves, planning reform alone has the power to get Britain growing again. Stagnation is not an option. Our public services are crumbling without the tax revenue to pay for modernisation. Our young people are being squeezed out of jobs by unaffordable rents. Our businesses are moving overseas.

There is an electoral warning for the Conservative Party. Myopic Nimbyism will isolate voters. A quick glance at Canada, where the Conservative leader’s push for growth and housing has spurred them from the doldrums to a 13-point poll lead on Justin Trudeau, shows being pro-growth, pro-housing has an electoral benefit.

Politicians should remember that home may be where the heart is but building homes is where the growth is.

‘When a dispute arises, people wanting to build enter a lottery of appeals that drags on for years’