Three months after Liz Truss became prime minister, Rishi Sunak is settling into Number 10. The unprecedented change of prime minister twice in such a short space of time understandably raises questions about whether the current government holds a valid mandate from the electorate to continue until 2024. How he deals with the current economic instability incurred from the chaos of the final weeks of the Truss regime will define his legitimacy.
Truss found herself up against a status quo that was uncomfortable with her and the political risks she was taking – the champions of economic orthodoxy and jittery investors too short-sighted or incompetent to see past the short-term volatility to the long-term economic benefits that restructuring the British economy in such a way would bring.
While the international conditions were rocky, for Truss it was a choice between embracing the doom of recession or sailing headlong into a storm with the reward of growth on the other side. Whether she had the leadership and communication skills to deliver this is another question. She took a risk with the timing of her reform, without taking the time to prepare the ground and securing solid support for it within her Party, which has proven to be fatal. Nevertheless, many of the central components of her vision are the only way towards long-term growth for the UK economy.
We live in a world where people can choose where they live, set up businesses and contribute to local growth. We have no choice but to compete globally to attract more high earners to tax, attracting entrepreneurs as well as high earning professionals. What’s more, money can choose where it goes and historic precedent tells us that tax cuts result in capital and investment moving to the UK. This has to be done by adjusting the UK economy to be low tax and high growth.
To say that these changes solely benefit the elites of society is incorrect. This is no time for stoking an “us vs them” mentality. The UK sports a 78% service economy and without big earners and spenders we are in trouble. Forget “trickle down economics”, 78% of us get paid for the services we provide, not goods we manufacture. Boosting the services economy is where we lead the world, it’s what we’re best at, and it’s where most of us actually work.
It’s also wrong to say that the tax cuts unfairly benefit the City. It is estimated that the top 10% of all taxpayers – a large percentage of whom work in the City’s financial, legal or other professional services – are paying 60% of all our tax. The more of them we have and the more they get paid, the more tax we collect from them. Uncapping bankers’ bonuses was a very efficient way to rather quickly get more taxes into the Treasury’s coffers for all of us to benefit from.
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Once the economy has been adjusted to attract more higher earners and foreign investment, the government must use that new higher tax intake to reward every worker in the economy. The answer must be raising the personal allowance.
Raising the minimum a person earns to start paying tax from £12,500 to £25,000 would be a just and an incredibly popular measure. The bottom half of taxpayers pay less than 3% of all taxes collected. The cost of processing it and the inherent inefficiencies of government spending make this tax nonsensical. However, the financial and emotional stimulus this money would provide to those low earners would be very positive for our economy, where this new freed up cash would be used for consumption, investment or savings. It is arguable that more than half of this tax cut would come back to the Treasury via VAT, fuel duty etc. Communicating this effectively could make for an election winning policy.
We must stimulate spending and private capital investment. We must earn more as an economy to afford a world class social benefits system and defence industry. We must reclaim our competitive edge via conservative tax policy and aggressive competition for global capital for the benefit of everyone in the UK. Only a Conservative government can stimulate investment and deliver the long-term structural change the UK’s economy needs. Liz Truss might have been too hasty in her efforts to do so but this is the correct vision for the future of the UK.
The author is a former investment banker and the largest female political donor in British history, having donated over £2m to the Conservative Party. A British citizen, she is is a VC investor and a director of the UK property firm Capital Construction and Development Ltd.