The word recession hadn’t been thought of for years, but after the Bank of England announced that we should expect it by the end of 2022, it was thrust into the forefront of people’s minds. Of course, external factors play a huge role in this; the Russian invasion of Ukraine disrupted global trade and supply chains are still recovering from Covid-19. These don’t tell the whole story, however. The UK economy has been failing for more than a decade now, suffering from low growth, low productivity and low ambition. The fault lies with the governments that brought us here.
Even if we ignore the pandemic, we have been in a dire state for years. Between 2010 and 2020, productivity growth was only 0.3% and real GDP grew on average only 1.4% per year. In comparison, in the 1990s our economy grew at 2.6% per year and in the 1980s it was 3.1%. It wasn’t even a global phenomenon – over that same 10-year period, America grew by 2.3%.
It is not surprising that this was the case; the Conservative Party has been tinkering for a long time rather than governing. Take an area like taxation – the party will point to things like reduced corporate tax rates and basic allowance increases as its big accomplishments. But these achievements date back almost a decade and are riddled with drawbacks that compromise their success.
For example, when George Osborne reduced the corporate tax rate to 17.5%, he simultaneously changed the expense rules so that fewer assets could be deducted from tax bills, making the more difficult investment. For many resource-heavy companies, this actually meant their bills were going up. Indeed, corporate tax also rises to 25% from next year (or 28% for banks).
In addition, the results of income tax reforms are slowly fading because the effects of inflation are not taken into account by updating the brackets. This means that we are taxed more each year, as more of our income becomes taxable at higher rates.
There is also a lack of commitment to bold ideas. We have recently seen the abandonment of the Oxford-Cambridge arch, which was to contribute £111bn to our GDP. The same fate has befallen HS2 which will no longer serve as many cities as it was originally designed.
House building is where complete lack of idea manifests itself best. In 1951, conservatives considered housing to be “the first of the public services”, but today this idea is lost. From an economic perspective, it’s clear that to create growth, we need to make it easier for people to move to where the best jobs are for them. This is currently impossible because the cost of living in our most expensive cities is exorbitant.
The Tories have long tinkered with the system offering grants to first-time buyers and introducing new rules to try and get a few more houses built. However, none of this is enough. The fundamental truth remains that housing has become more unaffordable every year for decades.
The Conservative Party no longer has a plan. Our economy is growing more slowly than our competitors and we have no strategy to change that. What we need is someone, anyone, willing to do what it takes to create growth and become a more productive nation again. If this does not happen, recessions will only become more frequent.