Can a low-tax Britain rediscover its enterprise culture?

The tributes pouring in following the death of Lord Lawson are effusive, and rightly so. The former chancellor was one of those rare individuals in British public life, an intellectual and uncompromising thinker who succeeded in turning his political philosophy into policy. 

It’s why he is being praised – from right, centre and even privately on the left – as one of the great brains of the 20th century whose tax reforms in the early 1980s ushered in a period of great change and prosperity.  

If Margaret Thatcher was the master builder, then Lawson was the architect who helped her construct the scaffolding to rebuild and re-energise Britain after the stagnation and malaise of the 1970s. His first Budget in 1984 set the framework for a radical programme of tax reform, cutting corporation tax from 52% to 50% and employers’ National Insurance contributions. Some five years later, when he left No 11 after his infamous bust-up with Lady Thatcher, the basic rate of income tax had fallen from 30% to 25% and the top rate from 60% to 40% while corporation tax came plunging down to 35%. It was these policies – combined with Thatcher’s privatisation programme, the sale of council houses and constraining union power – which fed what was called the Lawson Boom, and the dynamism of the 1990s. Not all these policies were successful, far from it. Some of the privatisations were botched, leaving industries like water and indeed even electricity, with fundamental flaws. 

Yet despite some of these mistakes, the Thatcher era of which Lawson was so integral, triggered an extraordinary period of entrepreneurialism and a new sense of derring-do.  

Perhaps the best description of his legacy comes from the man himself. When asked in a rare and what has now transpired to be his last public interview in March, Lawson told economist and journalist, Liam Halligan, that he would like most to be remembered “as a leading member of a government which changed everything in this country, not just economically, but embracing that and going further.”

(It’s really worth listening to the full interview which can be found on the Telegraph’s brilliant Planet Normal podcast which Halligan co-hosts with Allison Pearson.)

If in any doubt about the huge scope of the changes they brought about to arrest Britain’s decline and re-invigorate the economy, read Lawson’s Mais Lecture, given in June 1984, entitled The British Experiment.

After setting out the government’s twin aim of curbing inflation and bringing down public borrowing, he added that reviving Britain’s spirit was the essential ingredient. “In the field of microeconomic policy, too, what we are seeking to do is to change a psychology, to change a business culture. The abolition of pay controls, price controls, dividend controls, foreign exchange controls, bank lending controls, hire purchase controls, industrial building controls – all these have been beneficial in themselves, but will bring even greater benefit to the nation as part of the process of rediscovering the enterprise culture.”

Looking back at that list of barriers to trade and unnecessary regulations is a history lesson in itself. He went on: “It is the rediscovery of the enterprise culture, operating within the framework of markets progressively liberated from rigidities and distortions, that will provide the only answer to the curse of unemployment, and the only true generator of new jobs.”

What Lawson didn’t say in his interview with Halligan – he was far too much of a gentleman – is how the last 13 years of Conservative government have trashed much of that legacy, and indeed, reversed years of tax cuts and reforms. 

However, what Lawson did say is that today’s tax levels are “undesirable and unsatisfactory.” More pertinently, he saw little evidence that the current government will restore the country’s fortunes. Interestingly, while Lawson describes Rishi Sunak as a “good guy and the right choice under the circumstances”, he did not formally endorse Sunak in last year’s leadership campaign as some have suggested. 

What’s more, he doesn’t believe that Sunak will be known for his tax cutting. So he will have been disappointed by Jeremy Hunt’s Spring Budget which saw the astonishing hike in corporation tax to 25%, the highest it’s been for decades. At the personal level, taxes are also at a high because of inflation and Hunt’s freezing of tax thresholds: the number of people paying tax at 40% is expected to double to eight million over the next five years.

And it’s this tax burden which led to Lawson’s killer line: that he doesn’t think “there’s anything new to come from the Conservative Party as it now is. It’s going to have to reinvent itself – and I don’t see that coming soon.”

Is he right? Is there any chance that Sunak, who says he admires Lawson, and Hunt, who pledged during the last year’s leadership campaign to slash corporation tax to 15%, can reinvent themselves and claw back voters’ support at the next election? 

Well, everything is possible. The economy is not looking as ghastly as it was only a few months ago, inflation is coming down, as are energy prices. Who knows, but it is entirely possible that – unless Russia’s war with Ukraine escalates – the economy turns out to be far healthier than previously expected. 

If so, Sunak and Hunt might be brave enough to take courage from Lawson’s great British Experiment and start wielding the axe ahead of the next election. Or perish the thought, maybe it’s Keir Starmer who goes into battle criticising the Tories as the party of high taxes – one which has run out of money – and promises to bring them down. 

Although there is a strong lobby within Labour arguing for a wealth tax – and increasing the rate of capital gains tax – it’s unlikely that Starmer will adopt this as a manifesto pledge if he has any hope of winning. He and shadow chancellor, Rachel Reeves, have been cosying up too closely to big business and potential business donors for months now to know that such a policy would spell doom.

No one needs reminding that Britain now has the highest tax burden in 70 years with total tax receipts at a 36-year high, representing around 38% of GDP. It’s the highest tax burden since Clement Attlee was Prime Minister but also the most complex: the latest Tolley’s tax handbook has 23,066 pages of new rules – and indeed loopholes. 

Which is why tax rates and who promises what are likely to feature high at the next election: voters won’t stomach higher rates – whatever they tell the pollsters when asked whether they would pay more for better public services. 

Businesses – both small and large – are already shaking their heads at the rise which takes effect this week, with many privately saying they will find ways to avoid the higher rates either by re-investing in their own business or bartering services with other clients in order to reduce profits. That’s hardly the spirit you want at a time when we are desperately trying to avoid recession and go for growth. 

Politicians of both parties should look back and remind themselves of Lawson’s reforms but also the post-war government of Winston Churchill which reduced the tax burden more than any other postwar prime minister, by 4.5 percentage points. (Unsurprisingly perhaps, the biggest tax rises came under Labour’s Harold Wilson, who oversaw a 4.6 percentage point increase.)

They should also recall what Churchill said, when explaining his post-war tax policies, that “for a nation to try to tax itself into prosperity is like a man standing on a bucket and trying to lift himself up by the handle.” 

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