Britain can’t tax its way to growth

“The best things in life are free,” as the song goes, but you can keep ’em for the birds and bees. The defining version of Money (That’s What I Want) was hammered out by the Beatles in 1963 for their second album, With the Beatles. Lennon rasps, the harmonies soar and the powerful rhythm section nails the whole thing to the floor. The combination makes for shiver down the spine excitement. In comparison the Motown original of Money written by Berry Gordy is weak and insipid.

I returned to the Lennon version, and the album, this morning prompted by completing a review for The Times on science and technology historian David Edgerton’s new history of the rise and fall of the British nation. His book made me miss the 1960s, even though I was never there. Lennon’s version of Money is a British, modernist, Mod even, consumerist anthem, an urgent demand for gratification and freedom. British culture in the 1960s was vibrant and our technology and industry was, contrary to the declinist myth, pretty good too. Even while undergoing a rapid post-war overhaul, moving away from the mines towards the manufacturing, retail and services of the future. Then the oil crisis and the trade unions intervened.

I won’t re-review Edgerton’s book here. Buy The Times next Saturday to read it. Buy The Times every day, of course.

But the manner in which Edgerton unpicks myths makes for stimulating reading.

All countries have their own myths. The Scots are more caring and moral goes the Scottish media and political class myth, pushed today by nationalists arguing ahistorically that Scotland under the SNP is defining, somehow, a new, generous nationalism compared to what they claim is nasty Brexit Britain. This is laughable, and an utter cheek considering the way England has absorbed cultures and adapted. Look at English music, London or the England football team. England needs no lectures from my fellow Scots.

National myths die hard. The French have a particular idea of France, which President Macron is reclaiming and reinventing. Italy has the myth of the leeching south, when in reality the south was raided by the north. Germany has, well, a whole dressing up box of its own soiled myths.

The biggest piece of British myth-making of the lot since the Second World War is surely the National Health Service. I do not propose here to make the case for substantial health care reform. Like many pro-market people, I gave up on that years ago. The surge of reform from Thatcher through to Blair was difficult enough, and it did not go far enough. There is no appetite among the Brits for reform. Even the basic argument for reform cannot get off the ground. That is, that with limited resources the finite amount of money should be made to go further thanks to efficiency, which is in most other fields down to competition and market mechanisms. The regulated market is what we should want if we say we favour more and better care.

Blair was the last to try it properly and his premiership ended shortly after at the hands of Brownites who preferred the reassuring myth. Cameron tried a bit but had other problems to deal with. Neither of them were privatising the NHS, they were reforming it. But the charge stuck.

And so it goes on, decade after decade, the self-regarding veneration of our system and the myth that we are the only country in the world with functioning universal health care, and that it’s this or the expensive and unfair US system. And as though what has worked in food (supermarkets and food production) or in clothing or furniture or travel, that is markets of one form or another, cannot be applied in any way to health care, otherwise the myth will die, and we will all die with it.

It was in that spirit – pour in more money as a sign of virtue – that the British government this week announced that it will spend an extra £20bn each year on the NHS. It attempted to describe this as a “Brexit dividend” – a claim which even Brexiteers like me regarded as almost entirely bogus.

The health splurge was as much about changing electoral demographics as Brexit. The Tories are shedding some middle class voters and gaining working class voters. Being more redistributionist, raising taxes and dispersing it, makes sense in that context.

Does it make more sense for the economy?

No.

When the Treasury and the Chancellor attempted to get from Number 10 an explanation of what the money will be spent on the answer was a big blank. Put a bet on now. Much of it will go on whopping pay settlements, producing no productivity or efficiency gains.

Taxes will go up. Spending will go up. And the Tories cannot say what the NHS will do with the money.

The Conservatives, terrified of a Brexit backlash or the decay that comes to a party so long in office, are now a party pledged to raise taxes.

Whatever one thinks of Brexit – good idea, in my view, or bad idea that makes everything more difficult – it is clear that Britain is going to have to find a way in the 2020s of making itself more prosperous. We need money. We need business boosted and a new generation of entrepreneurs and enterprise. As Margaret Thatcher put it: rather than arguing about dividing up a cake of a fixed size, let’s make and bake a bigger cake.

Increasing taxes is not going to be the way to do it. That sucks money away from individuals and companies who might invest it or use it to expand. It makes their job more difficult, rather than – as we should be doing – using supply side reforms to encourage the baking of that bigger cake.
Not only are the Tories now so adrift that they have no public sector reform agenda, and nothing passing for economic policy. They are now for higher taxes. The heart sinks. Corbyn is winning, even without winning.

Once this current weird experiment is over – trying to play politics without a functioning leader or a coherent set of ideas – the Tories will need a fundamental rethink.

Have a good weekend.

Iain Martin,
Editor and publisher
Reaction