The Government is in a pickle about its economic plans. What is clear to all but the Chancellor and the Prime Minister is that their current economic plan is not working.
The Treasury is determined to say that Plan A is working and that the Government should stick to it. However, we all know, including the boffins at the Treasury, that the plan isn’t working. The economic data, the experience of voters across the country and the fluctuations in the global economy all suggests we need to urgently change course in order to achieve sustained economic growth.
Call it Plan B, Plan A+ or Plan C, I don’t mind; what I do want is an economic policy that not only addresses the challenges that our economy faces now but one that looks at creating a more prosperous economy for all parts of the UK in the future.
There is much agreement on the backbenches across the political divide that the Government needs to move on from austerity, austerity, austerity to growth, growth, growth. Depending on where you sit on the economic spectrum this might mean more stimulus, targeted tax cuts, job creation or reskilling. For my part, I believe it to be, all four.
It will be clear to most Labour supporters that more jobs and economic stimulus is plainly a sensible thing, but why tax cuts? The Chancellor and his chums delight in mocking those who call for lower taxes as out of touch. However, when austerity alone isn’t working we need to consider ways to kick start the economy – economic catalysts.
Lower taxes will help drive economic activity, and thus in the medium term a higher taxation return for the Exchequer. If used correctly, targeted tax cuts can help encourage growth and with that more employment and more revenue for the Treasury. It is important here that tax cuts are targeted at those catalysts for growth and employment that will make Britain’s economy stronger. Simply, I would propose two tax cuts: on fuel and flights.
High fuel taxes punish the transport of goods, making every item in the supermarket more expensive, every manufactured good that bit pricier, and every service industry a tad more costly. The Chancellor would be well advised to go beyond a fair fuel escalator and look at reductions to help make transport easier for business and families.
A second tax the Chancellor ought to review is Air Passenger Duty (APD). Making flying more expensive not only puts off valuable inbound tourists, which every part of the UK needs to attract more of, but also makes doing business with Britain more expensive than commerce with our nearest neighbours. The Treasury is reviewing the structure of APD currently, but the review looks only at the shape of APD and not the level of the tax. Just as a lower fuel price would help encourage trade via ground routes, a fairer level of taxation for flights would encourage trade via air routes.
Next year the Treasury plans to increase APD by double the rate of inflation. That makes the world’s highest air tax even higher and places the UK at an increasing economic disadvantage when compared to our competitors. Airports like Madrid, Amsterdam, Paris and Frankfurt must be rubbing their hands together with glee at rising APD rates in the UK. Every time the Chancellor increases this unfair tax, they know their position vis-à-vis UK airports and airlines gets a bit stronger. British businesses are competing in a global marketplace and to unilaterally impose higher costs on our own products and services seems to me to be entirely counterproductive.
Britain can ill afford to cut itself off from its overseas and domestic markets. Reducing the tax burden on transiting goods and services, or at very least ensuring it goes no higher, ought to be an immediate priority for this Chancellor.
I care little about what he calls these measures: Plan A, Plan B, Plan C…I really do not mind. What I care about is how we kick-start our economy, first and foremost, by making the UK a cheaper place to trade with, and trade within. This can only encourage economic activity that will generate a better economic position for the UK in the long run. The question for the Chancellor is whether he is prepared to trade lower revenues in the short term for greater ones in the medium term with resulting higher growth and more jobs.
Brian Donohoe is the Labour MP for Central Ayrshire.