2023-07-11 13:00:08
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Former UK prime minister Liz Truss will on Wednesday back a panel of 13 international economists commissioned to investigate “pro-competition” policy reforms and restore credibility to her “pro-growth” political agenda.
The project will be seen as a challenge to Rishi Sunak, Truss’s successor as prime minister, who Tory MPs accuse of presiding over a high-tax economy and backtracking on planning reforms.
Truss’s 44-day premiership ended in calamity last year after she launched an ill-fated “mini” Budget involving £45bn of unfunded tax cuts and openly attacked the UK Treasury for its economic “orthodoxy”, unleashing turmoil in financial markets.
The Growth Commission, which has been convened by Truss, will make the case for regulatory and competition reforms on tax, planning and trade which, despite Truss’s shortlived tenure, remain core thinking on the right of the Conservative party.
“Two areas that we are particularly focusing on are the market distortions internally, and the tax system in the UK which we think is not pro-growth,” said Douglas McWilliams, an economic consultant who will lead the commission’s work in an interview with the Financial Times ahead of the launch.
A 33-page opening report, led by McWilliams, charts the slowdown in growth in gross domestic product per capita that has taken place across the developed world over the past 20 years, with the UK performing particularly weakly.
“In the post-Covid period, the UK is one of the few international economies where GDP per capita is actually falling,” the report said, though without mentioning the impact of Brexit, a growth-inhibiting factor that has been unique to the UK.
The report does not offer a diagnosis of the problem, or set out solutions. But co-author Shanker Singham, a trade consultant, argued that global GDP growth had slowed since the mid 1990s as the post-second world war drive to formalise a global trading system and remove the barriers to international trade lost momentum.
“For more than a third of the lifetime of that system there has been no meaningful liberalisation,” he said.
The commission wants to develop economic models showing how far tax and regulatory policies relating to energy, land, transport, housing and other areas have stunted growth. It also wants to examine whether a bigger state has contributed to the stagnation in GDP.
McWilliams said the aim would be to capture the long-term effects of tax changes on behaviour better than the government’s current economic modelling.
He cited impact assessments by the Office for Budget Responsibility, the fiscal watchdog, and work by HM Revenue & Customs on VAT-free shopping for tourists, which was briefly reinstated in the Truss Budget, before being axed by current chancellor Jeremy Hunt.
“If we can be a goad to get HMRC and OBR to do this better, we’d be really happy,” McWilliams added.
Since Brexit, the pro-Truss wing of the Conservative party has repeatedly expressed frustration that successive governments have failed to identify significant regulatory reforms to make the UK economy more competitive.
Most recently, industry and labour groups forced the government to backtrack on a pledge to remove all EU-derived law in the UK by the end of this year, to the anger of pro-Brexit Conservatives who believed the move would boost UK flagging productivity.
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Singham said the failure of business to embrace the offer of post-Brexit regulation reflected the power of “incumbent businesses” that resisted change to protect their place in the market.
He added that a focus on the “costs of divergence” to companies had obscured the costs inflicted by regulation in areas such as competition policy, green regulations on energy and retail banking that protected incumbents.
“Part of the problem is, because we have not done a good job in the last 20 years in identifying what the cost of anti-competitive regulation is, the assumption in advanced economies is that we’ve exhausted all the gains of pro-competitive reform,” he added.
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