Dear Liz Truss,
Do you dream about reversing Britain’s fortunes at lightning speed, of slaughtering the demons of stagflation, indebtedness, and negative growth, of making Brits much richer rather than poorer, and thereby winning the heartfelt love (and votes) of vast swathes of the country? Dream no more. It’s dead easy. Just do as John Cowperthwaite did. (ed: who he?).
John Cowperthwaite was a shy, bald, bespectacled Scottish civil servant — at once the most dull and exciting who ever lived. Dull, because (unlike Boris Johnson) he was a firm believer in government doing almost nothing. Exciting, because of what happened when he tried it.
Cowperthwaite became Financial Secretary of the then British colony of Hong Kong in 1961. Post-war Hong Kong, before Cowperthwaite did (or didn’t) do his stuff, was a dirt-poor shanty town, with zero natural resources and little to recommend it, with a per capita GDP a mere third of Britain’s (at a time when we were the sick man of Europe).
Cowperthwaite faced the immediate problem of a budget deficit. He was told that to cover it, he must raise taxes (like Rishi Sunak) or else the government must borrow more. He decided to do neither. Instead, he slashed taxes and tore up regulation to an extraordinary extent. Not just a bit. And not slowly.
“Doing nothing” doesn’t sound like a proper policy, so it became known as “positive non-intervention.” As for taxes, most were simply scrapped and the few that remained were massively reduced, including a flat income tax that never exceeded 15 per cent. When I was filming a documentary in Hong Kong ten years ago, even the low income tax only applied to wealthier Hong Kongers, and there was no VAT, no capital gains tax, no inheritance tax.
The Financial Secretary did, in spades, what Liz Truss is being told by so many people that she absolutely mustn’t. But the Scot Cowperthwaite slept with a copy of Adam Smith by his bed. He knew that tax kills growth. Taxing income leaves people less money to spend, to save, and to invest, and it makes them more expensive, and therefore less profitable to employ. Taxing companies reduces profits, which reduces both the incentive and the ability to reinvest and grow.
When John Cowperthwaite radically slashed taxes, the results were instantaneous and spectacular. In the four to five years after his first budget, Hong Kong grew between 10 per cent and 15 per cent a year. The number of factories grew by 30 per cent and the average number each employed grew by 135 per cent. Savings grew by 300 per cent (interest rates were at market levels rather than forced low) and these bank deposits provided capital for Hong Kong businesses to expand. And there was no inflation (he knew that inflation was caused by printing money, not “demand”).
By the late 60s, everything in the shops seemed to be made in Hong Kong, and they had to start building spill-over factories in neighbouring Asian countries (which kick-started the Tiger economy revolution). Cowperthwaite quite reasonably concluded: “Surely this is an astonishing picture of sustained growth?” and he credited, “a stable currency, low direct taxation, freedom of enterprise, and absence of government control or interference with the free interplay of the forces of the market.”
Did public services suffer? Quite the opposite. John Cowperthwaite said: “Even I have been surprised by the growth of revenue generated at our present rates.” His low taxes left Hong Kong with health, education and transport systems to die for, achieving outcomes that put it at the top of international league tables. (NHS envy of the world my arse).
Before Cowperthwaite, Hong Kong had a per capita GDP on a par with Bangladesh and Zambia. Thanks to Cowperthwaite, it is now on a par with the United States and Switzerland. The growth Britain achieved in 100 years, Hong Kong achieved in just 20. When Taiwan, South Korea and China decided to copy Cowperthwaite’s low-tax policy, they achieved that century of growth in just 13 to 15 years.
Yes, Communist China. When I was making my documentary in Hong Kong, state spending in Red China accounted for just 28 per cent of GDP. In Britain at the time, the state was spending 53 per cent of GDP.
So, Liz, a low flat tax of 15 per cent, ditch the Guardian Net Zero nonsense, and if you really want our beleaguered welfare regions to take off, scrap corporation tax completely. BMW and the rest will relocate to Jarrow in a heartbeat. But — and here’s the thing — get ready for the biggest fight of your life. The vested interests, sucking off the taxpayer teat, are truly enormous and powerful. Our tax-parasite establishment has Keynesian lunacy in its very DNA. It craves money-printing, indebtedness, high taxes and more government spending like a junky craves heroin. If you try to do a John Cowperthwaite, it will turn on you like an angry giant deprived of its pot of gold.