Improving weak productivity and Chris Giles' three tests
The Financial Times economics editor Chris Giles has written an interesting article bemoaning the paucity of attention given to our dismal productivity statistics by the political parties, offering three tests on their resolve to fix it, which he says they all flunk.
Britain has much unused land and much pent-up demand for housing. His first test is whether parties are proposing policies to fix this problem, specifically:
"whether political parties have the courage to suggest borrowing money, using compulsory purchase orders to buy developable land and ensure the growth in the supply of housing rises to levels last seen in the 1970s."
I don't agree that this is a good solution to the problem. There is a growing body of evidence to suggest that planning restrictiveness is holding back supply, as detailed by Dr Kristian Niemietz in our Spending Plan and more recently by the LSE's Christian Hilber in his housing policy election briefing. Pushing more money through the existing planning system may simply result in forcing taxpayers to pay for homes that are unnecessarily expensive to build. This is partially addressed by Giles' suggestion of using compulsory purchase orders to reduce the cost of acquiring land. But authorities should be wary about seizing people's property, even if they do consider the price they offer to be fair or even generous.
His second test concerns infrastructure and the constrained runway capacity in the South East. It asks whether Heathrow would be allowed to build a new runway. Finally, his third test concerns the time and money we waste trying to navigate and game our notoriously complicated tax system and looks at commitments to simplify it. On these questions, too, the parties also fail.
Giles is right to pose these questions as prime examples of "low-hanging fruit" for any government serious about improving productivity, and right to highlight the fact that productivity will become increasingly important as the "output gap" becomes smaller with more of the economy's spare capacity being put back to use.
We have a slightly different approach on the same questions, for example in planning reform to redraw the green belt and relax building height restrictions. But tax simplification is long overdue and our comprehensive plan for tax reform, the Single Income Tax, which our 2020 Tax Commission published in 2012, would deliver substantial benefits in terms of neutrality and sharpening incentives to work, save and invest in the UK. More recently, we published our fully-costed Spending Plan which details the measures we think are required to bring spending down to the level proposed in the Single Income Tax.
It's a shame that none of the parties are openly offering any effective policies to meet this challenge.
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