Grinding halt
Ideas to get Britain out of its economic stagnation
Whilst not an explicit theme of the book, one of the key lessons from Bill Bryson’s excellent A Short History of Nearly Everything is that many of the advancements in culture and business were made by obsessive men of private means — those who had the curiosity and will, the time and, of course, the capital to tinker with problems, invent or discover new things, and to generally indulge their obsessions.
Many of these inventions made it to market because of the lightest of possible regulatory regimes meant that they need not jump through years of regulatory hoops — making it relatively cheap and easy to turn these inventions into innovations.
As the years went on, and Inheritance Taxes continued to bite (mostly to fight wars), these fortunes were whittled down, and the funding of such innovations increasingly fell to groups of shareholders — investors of the more merchant class who were considerably more concerned about the ability to make a return on their capital.
Innovation requires investment
The above is, I’ll admit, a somewhat abbreviated introduction, but suffices, I think, to illustrate some key points about business and innovation:
innovation drives progress and enriches us — not merely in increasing living standards, but also culturally;
inventions require capital — chunky sums of money — to turn them into innovations, i.e. reality;
regulations inhibit innovation by increasing the time and expense of bringing new ideas to market. This requires that more capital be injected because the timescale until return is extended;
in the UK, the regulatory regime is so convoluted — and, critically, the determining bodies so screamingly incompetent — that this timescale is, effectively, infinite: decisions take years (or, in the case of critical infrastructure such as power stations, reservoirs, and runways, decades), ensuring that funding often runs out or, indeed, the process is never even started;
investment is always a risk: maybe the invention won’t work, some regulation massively extends the time to market, or some new law stymies it, or perhaps the product simply doesn’t sell enough — perhaps because the regulatory cost has increased the cost side so much that it cannot be sold at the optimum price point;
all of this means that those investing need to anticipate large returns, or providing the capital simply isn’t worth doing.
Most businesses go bust. Many of those that survive never make the anticipated returns — or not, at least, in the anticipated timescales.
Investing is risky — but innovation is what improves our lives and drives economic growth. This should completely obvious.
Sadly, we live in a country populated by people who are, by and large, utterly unaware of such basic concepts and being taught by educational professionals who are equally ignorant — and who are mostly true believers in socialism (but I repeat myself).
And, after decades of this depressing farce, most of those in government are a product of this dangerous ignorance of these core basics.
Economic doldrums
This week, the BBC (amongst others) reported the unsurprising news that the UK entered a recession in the last two quarters of 2023. Well, OK: one way to curb inflation is to induce a small recession. But the really depressing news was buried further down the article:
For the whole of 2023, the UK economy grew by 0.1%.
This is utterly pathetic, and is symptomatic of the ignorance of the total berks that are currently running the country. When even the Resolution Foundation realises that things haven’t been going so well, you know that your economy is in real trouble.
The UK has great strengths, but is a decade and a half into a period of stagnation. The toxic combination of slow growth and high inequality was straining the living standards of low- and middle-income Britain well before the cost of living crisis struck. It is time to embark on a new path.
It should go without saying that the RF’s path is, for the most part, utterly bonkers — its grand strategy can be summed up as ‘higher minimum wages, higher benefits, and higher taxes (especially on wealth) to pay for it all’ — they have at least correctly identified many of the problems in the economy.
But given that very high taxes caused by very high government spending is one of the more significant issues, then their prescriptions for fixing it are utterly bonkers.
Nonetheless, the RF seems rather more on top of the problem than the Capital Economists spokesperson quoted in the BBC article:
Ruth Gregory, deputy chief UK economist at Capital Economics, said "this recession is as mild as they come", adding that the data "is more politically significant than it is economically".
After all, whilst 0.1% growth might be better than no growth, it is hardly symptomatic of a healthy economy.
The Nordic solution?
One assumes, of course, that the Resolution Foundation has been looking to the Nordic economies in formulating their blueprint for a revitalised UK economy. After all, a superficial admiration for the high-tax, high Welfare societies of Sweden and Denmark have always held a strong magnetic effect for hard-of-thinking left-wing commentators, such as the egregious Polly Toynbee.
What La Toynbee and others of her ilk so often gloss over — deliberately or through ignorance — is that the Nordic economies have far lighter regulatory regimes than does the UK. Quite simply, these countries realised that, in order to afford all of the state-supplied luxuries that would so benefit their peoples, they needed to have strong economic growth. And that strong economic growth requires the minimum of strangling regulations, light business taxes, a simple legal system, and well-maintained infrastructure.
Another aspect of Nordic political life is that taxes tend to be raised locally, and spent locally. In Sweden, if you don’t like your local environment, then either you can move or, at the very least, you know where your politicians drink…
Unfortunately, this political regime and light business touch — which has lasted for a considerable amount of time — has started to break down (caused not least by these countries’ membership of, or proximity to (in the case of Norway), the European Union). Over the last few decades, the increasingly constraining regulatory regime has started to slow economic growth which will lead, inevitably, either to change or bankruptcy.
Regardless, this whole settlement worked because the Nordic countries tended to be quite socially homogenous: all of this marvellous lifestyle is currently being put under threat by significant immigration. And said immigration is introducing significant new threats too.
Given the UK’s very different history and social make-up — not too mention its considerably larger population and geographically unbalanced economy — means that pursuing the Nordic strategy is certainly not a short- or even medium-term panacea (even were we to determine it to be a desirable long-term goal).
Problems in a nutshell
There are a number of core problems holding back the UK economy, and they all hark back to your generous General’s post on the Crises of Government Origin (COGO):
the inability to build anything — most critically factories, laboratories, power stations (of any type), reservoirs and, perhaps foremost in the public mind, houses;
a confused, confusing and strangling regulatory regime — made worse by years of EU legislation and made even more lethal by the government’s inability to reign in the proliferation and incompetence of its QUANGOs;
increased taxes on business and investment income — although not widely reported, taxes on wealth and investment income have increased sharply under Jeremy Hunt;
the Green movement and Climate Change idiocy — Western governments have realised that they can “meet” their emissions agreements by systematically destroying manufacturing capabilities and outsourcing them to countries that are exempted from the Paris Accords (such as China and India);
a social aversion to wealth creation — sponsored by governments and government-funded “charities” in order to justify raids on “rich” people and organisations by bankrupt states desperate for both votes and cash-cows.
All of these are not only destroying our economies, and consistently driving down our living standards. And they are all the fault of the state.
Whatever else one might say of her (and lots was — and not all of it by Sunak’s allies briefing against her), Liz Truss realised this: and so when I see people writing articles entitled Was Liz Truss right all along? one can only yell, “yes, of course she was, you silly tit.”
Unfortunately, her poor grasp of politics meant that she was swiftly defenestrated by the scheming Rishi Sunak — a man whose huge ambitions stand in direct opposition to his minuscule stature — and the world’s most boring henchman, Jezza “Lunt” Hunt.
This pair of pillocks — the so-called “adults in the room” — have rapidly restored the status quo ante. Which for more than a decade, as the RF and others have pointed out, is economic stagnation and societal decline.
So, we have a choice to make: but people need to be able to understand those choices. As I often say to those who tell me that they are not “interested in politics”, well, politics is very interested in you…
The Armchair General has been mulling all of this for some time, and very depressing it is too. The simple fact is that we have a choice — either we carry on as we are into inevitable decline and, eventually, bloody revolution (probably when the lights start going out in the early 2030s); or, we can decide that we want to press for achievable, defined changes.
Stop punishing investment
The first thing that needs to be done, as the bare fucking minimum, is for Hunt to reverse the reduction in allowances for returns to capital.
Nutmeg financial planner Chris Liebetrau said: “The threshold for paying capital gains tax has been halved from £12,300 to £6,000 for the 2023/24 tax year and will be cut again to £3,000 in the 2024/25 tax year.
All taxes have “deadweight costs” — that is, the measurement of loss in the economy (and thus, often, to government tax receipts in the longer run) caused by the imposition of a new tax, or new rates of tax — and each tax has different deadweight costs. The tax which has the highest deadweight cost is tax on capital returns; that is, that even small increases in Capital Gains taxes can have hugely disproportionate effects in stifling the economy through a lack of investment.
This fact about deadweight costs makes total sense if you consider the inherent and very real risks of business investing, outlined above, as well as the length of time that returns can take (with this latter factor meaning that perceived uncertainties in CGT changes can itself present large deadweight costs. Which, to be fair to him, is why Hunt set the reductions in allowances for three years in the future).
Governments that are serious about high growth minimise taxes on capital investment, because they understand that investment in innovation is what grows the economy. Unfortunately, the West — with the exception of the USA (mostly) — has been infected with socialism: many people see it as being both an economic and moral right to soak the rich, stealing “unearned income” from evil, risk-taking investors to redistribute to the unproductive. Which is why, of course, growth is so utterly anæmic across Europe.
In the end, Ayn Rand was right.
Planned into the ground
The single biggest problem in the country at present is the planning system: it prevents the building of anything at all, or makes that process so time-consuming and expensive that one might as well not bother. And it is not because this island is crowded: even including roads and gardens, we have built over around 8% of this country (and that’s a higher estimate).
So, why are houses so expensive? The answer is because there are not enough of them.
Housing shortage
But there really is no shortage of land: there is a shortage of permissions to build on the land. This is not just because Councils are not issuing enough permissions — although this is true (they also like to shake down developers for the maintenance of infrastructure) — but also because planning decisions are open to so many judicial reviews, environmental studies, and a myriad other regulatory burdens. This loads colossal and unknown costs onto any development, before a spade has even been put in the ground.
With the government and councils also legislating as to the maximum size of properties that may be built, it is easy to see why we in the UK have the smallest, most expensive houses in Europe.
The immense cost of property has terrible knock-on effects. Not only can people no longer really afford to buy homes, those who rent face ever-increasing costs too. And these costs mean that people on nominally high wages struggle to make ends meet; those on low wages need their pay artificially boosted through utterly nonsensical benefits such as Working Tax Credits and the National Minimum Wage (the latter, of course, increasing costs on business).
And what is the government’s response? Well so far, they have failed to reform the planning system: instead, realising that people do want to own, they have introduced barkingly insane measures that increase demand without increasing supply — Shared Ownership, Help to Buy, 5% deposit guarantees, the mooted 1% deposit guarantee, and any number of other lunacies which only serve to drive prices ever higher!
In the meantime, Gove and his bunch of chumps are busy loading more costs onto landlords, directly driving up rental costs or forcing landlords out of the rental market and so driving prices up through even further shortages.
Infrastructure shortages
This expensive, delaying farce applies to absolutely everything. Next time you whinge about a hose-pipe ban or your water supplier trying to force you to use less water, remember that Thames Water has been trying to build a new reservoir for the last fifteen bloody years!
If you think that we shouldn’t burn fossil fuels, but acknowledge that we want electricity — and, indeed, vastly more of it to support the phase-out of gas central heating and petrol cars — consider that, from announcement to the first space in the ground, it took 8 years to start building the Hinkley Point C nuclear reactor. And, as Jacob Rees-Mogg pointed out in 2022 (as Minister under Liz Truss), the Sizewell C reactor needs 140 permissions — each and every one of which is subject to potential judicial review [YouTube video]. As he said at the time, it is not surprising that it takes so long to build things in this country — it is “more surprising that anything gets built at all.”
Perhaps you also believe that trains are the more eco-friendly way to traverse the country, and are wondering not only why High Speed 2 was so expensive in the first place but also why it has so ballooned in cost? Well, I think that you know the answer by now…
Factory and laboratory shortages
All of the above applies to factories. How many times have you heard people complain that “we don’t make anything here any more”? Well, that’s because it takes many years to build a factory; and then the shortage of energy means that it is far too expensive to run that factory.
The government claims that it wants to make the UK a world leader in biosciences; at the same time, there is a massive shortage of laboratory space. Once again, our shitty planning laws are holding us back.
Blow up the Town and Country Planning Act
So, the first and single most important thing that needs to happen is planning reform: destroy the Town and Country Planning Act 1947 (and all of its successors) and replace it with the kind of rules-based system that is prevalent on the Continent, as advocated by the Adam Smith Institute.
This will, of course, upset those who view their houses as an investment — and the power of this group of voters probably explains why both Labour and the Tories have failed to grasp this nettle. But it needs to be done.
Quite apart from anything else, just think of the vast, vast amounts of capital — some £8.7 trillion in 2022 — that is currently locked up in useless lumps of bricks and mortar, but which could otherwise be used to invest in growing businesses.
This one act will, more than anything else, unlock the potential of the economy, and Get Things Done more quickly (and thus cheaply).
If someone says that they want to “grow the economy” but does not advocate planning reform simply isn’t someone that you should listen to — because they are not serious about it at all. And yes, I’m looking at you, Rishi (amongst many others — including Labour and the Limp Dumbs).
Moving on…
This post has turned into a something of an essay, and there are many threads that your humble Armchair General will pull on in the near future — not least the environmental threat.
But, hopefully, the above has given some food for thought; perhaps it has crystallised a few ideas as to the way forward. Note that none of these are original or particularly innovative — but they are essential.
As far as I know, no politician is advocating addressing Capital Gains or, crucially, serious reform of the planning system. So, they are not serious.
More importantly, no political party is seriously making the case that, if we want to be richer (even if you want to spend those riches on “our” public services), then we should focus all of our energy on supporting innovation — no one is standing up and making business growth the central plank of their manifesto, or making it their mission to remind the public of two core truths:
the government has no money except that which it extorts from us under threat of menaces, or borrows now for our grandchildren to pay back;
money does not simply appear in the bank accounts of businesses simply because they exist: you cannot make it more and more expensive to do, for instance, employ people and not expect to have to operate a self-checkout at the supermarket.
This advocacy needs to be done: the British people have become fat and self-satisfied on benefits that are extracted from the hard work of others — and have been told, by corrupted educators and greedy politicians, that businesses and “the rich” not only have effectively infinite supplies of cash but also that it is money that they do not deserve to have in the first place. As such, it is morally right to steal it from them, and to give it to “the poor”.
This attitude, eventually, leads to only one place: the poorhouse.