Raising the bar to tackle UK economic distress

Liz Truss was forced into a shameful turnaround this week over her plan to cut public sector salaries outside the UK’s booming southeast – the first big misstep in her campaign to succeed Boris Johnson as prime minister. However, the backlash to her proposals, including from Conservative MPs, was at least a sign that the party had not completely forgotten the stated mission of “upgrading” the UK economy. Truss and rival Rishi Sunak took surprisingly little time to discuss this agenda. But Truss’ plan appeared to be “levelling” the poorest regions – when doing the opposite would be key not only to the government’s hopes of re-election, but also to making Britain’s economy do better.

Both emerging presidents expressed support for a settlement, but with different assertions and limited details. Truss pledged to raise the bar in a “conservative way,” promising low-tax, low-regulated investment areas. Sunak echoed similar support for investment incentives, along with his earlier Freeports initiative, while lobbying various programs under Johnson.

With Britain’s tax burden at its highest since the late 1940s, the focus of the leadership contest on tax cuts is not surprising. However, the UK has moved towards being a higher tax country in part because it has also become a low-development country. This stems from its poor productivity, or hourly output, which has stagnated and lagged behind other advanced economies since the financial crisis. The huge disparities in prosperity between regions and countries of the United Kingdom reflect a failure to tap the productive potential of the entire country to drive growth. Both Conservative Party candidates must provide more detailed solutions to what is seen as an important driver of the UK’s recent economic turmoil.

Building on existing strengths should be a major focus. Supporting groups—particularly in growth sectors such as clean technology, artificial intelligence, and life sciences—that spread across the country can bring global influence to regions, attract funding and spur the development of second-tier cities and towns, which do not. Compete well internationally. UK regions also have world-class universities that have the potential to become centers of leadership for research and development, job growth, and diffusion of innovations into the economy.

Raising the bar should also be about tackling what the UK lacks. Investment has swept across the country, but rural, coastal and former industrial areas have been hardest hit. Both Sunak and Gears backed the tax incentives for investment in some way. These have a role in stimulating growth in distressed areas. But this needs to be matched by government support to boost the skills, housing and infrastructure linking major cities in the North and the Midlands – which a dearth of talent and projects only encourages to drain the South.

The right institutional structure is important if all of this is going to happen. The government’s February White Paper on devolution rightly emphasized that devolution is vital to ensuring that local policy responds to local needs. But this needs to be matched by more resources and revenue-raising powers if we are to address regional vulnerabilities.

However, more speed and leadership is also needed, from the central government in bringing large infrastructure projects, from rail links to power grids to nuclear power plants, to the investment stage. Here, the settlement agenda can align with net zero and energy security goals. After the BoE’s stark warning of an impending recession, Tory candidates should note that accelerating the influx of “shovels ready” projects will not only provide long-term stimulus, but the economy facing recession in the near term.

This is the second article in a series of editorials on the position of conservative leadership candidates on key policy issues

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