Britain's crisis of competitiveness is as big as the deficit crisis

Tim Montgomerie

On Platform today Mark Field MP writes a very important article about Britain's massive liabilities. He notes how we fret disproportionately over small but easy-to-understand things like the PM's vanity photographer and Sir Fred Goodwin's pension (questionable though both may be) and bury our heads in the sand over the true nightmares, such as "the £200bn worth of payments we still collectively owe under PFI contracts".

We need, Mark writes, to spend tens of billions renewing our energy, transport and ICT infrastructure but we are a nation massively in the red. He fears for Britain's future and wonders if we'll see talented young Britons flee to tax regimes where the burdens are lighter:

"In an age of unprecedented global mobility for our brightest and best, too many of those whom we now rely upon to drive this nation forward in the decades ahead may rationally conclude that better opportunities and possibilities await beyond these shores."

Britain needs an agenda for keeping young, talented people in Britain. Ultimately that means taxing people less. It means that someone in government needs to realise that low tax economies are high growth economies. At the moment the Chancellor, George Osborne, is admirably bold in bringing spending and the deficit under control but he has no tax policy worthy of the name.

The future of the 50p tax band is at the heart of this. A government worried about encouraging enterprise would be making its abolition a priority. Even Alan Johnson appears to understand that. My preference would be to abolish it without a replacement tax (I think abolition would quickly pay for itself) but that might be vetoed by the more cautious Treasury mandarins. If necessary I would have done a deal with the Liberal Democrats so that a tax on high value property could be introduced (perhaps a higher council tax band or a version of Vince Cable's mansion tax) in order that 50p be abolished. Yes, I'd embrace a lesser evil in order to pay for ridding ourselves of a greater evil.

Interestingly it has been Liberal Democrats who seem to be most interested in a rebalancing of the tax system. David Laws was writing about future tax cuts yesterday. Redistributing not so much from rich to poor from from unproductive activities (which could be taxed more) to productive enterprises (which should be taxed less). Nick Clegg in The Guardian this morning:

"New progressives want to reshape the tax base fundamentally, towards greater taxation of unearned wealth and pollution, rather than of people. Within weeks of coming into power, the coalition government had increased the income tax threshold by £1,000 to £7,475 and raised capital gains tax, by 10 percentage points to 28%. We are also committed to increasing the share of government revenue raised from green taxes. Rather than focusing on social mobility, Miliband grasps at the retention of the 50p top tax rate as his solution. I'm not sure that the members of his own front bench agree with him about this. It is a classic example of old progressive myopia, making a shibboleth of one aspect of the tax system rather than looking at it in the round. Britain's tax system needs real reform, not political posturing."

I agree with every word of that and have addressed this subject a number of times before (eg here).

At last week's Spectator Awards David Cameron joked that the magazine's editor, Fraser Nelson, thought that tax cuts were the answer to everything. Insofar as low taxes deliver growth they are an answer to a lot of Britain's problems but there is almost no evidence that the Prime Minister is willing to act on that. Ten days ago Fraser wrote powerfully about the brain drain out of Britain, because of the mounting tax burden.

As good as the Coalition's deficit reduction strategy is, it is going in the wrong direction on growth. On tax policy there is a welcome simplification agenda, a planned year-on-year reduction in the headline corporation tax but other taxes on enterprise, capital gains and financial services are rising. The Government is pursuing a pointless environmental policy that will increase manufacturing industry's energy costs. It is agreeing to regulation from Brussels that will hurt the City. It is doing nothing to modernise union laws. It is not too late to change course but a change of course is vital.

George Osborne and David Cameron need to face up to one simple fact: Britain is facing a crisis of competitiveness as big as the deficit crisis. If we do not reduce the burden of taxation on wealth creators they will head Eastwards.