Sajid Javid: We need a strategy for putting the country back on a secure financial footing

This article was originally published on ConservativeHome, 11/09/2020: https://www.conservativehome.com/platform/2020/09/sajid-javid-we-need-a…

 

When is a pandemic not a public health crisis?

That’s the question raised by pollsters in Australia and the US, who have found that the public are increasingly likely to talk about the impact of Covid-19 in economic – rather than epidemiological – terms.

Not so in the UK, where throughout lockdown the public’s attention remained firmly fixed on case numbers and mortality rates. In one sense, we have Rishi Sunak to thank for that. Interventions such as the furlough scheme were rightly among the most generous of any country, and have insulated many from the consequences of the downturn – so far.

The Treasury’s largesse, however, comes at a cost. Whilst the Government was right to spend ‘whatever it takes’, we cannot afford to play down the magnitude of the hole this has created in the public finances. In the first six months of the crisis, the National Audit Office estimates that coronavirus cost the government a whopping £210 billion in extra spending alone. To put that in perspective, a decade of warfare in Iraq and Afghanistan cost the taxpayer £30 billion.

Politically, the easy way out would be to accept a permanent increase in public sector borrowing – at least for the remainder of this term. There are many in Westminster who will try to seize on the crisis as a way of introducing unsustainable levels of day-to-day spending through the back door.

That would be deeply irresponsible and, in the long term, an act of national self-harm. Not only would we be burdening future generations with unserviceable levels of debt, it would leave us dangerously unprepared for future crises.

I’m not suggesting that we slam the brakes on spending, nor that we abandon a manifesto pledge not to raise the rate of income tax, VAT or National Insurance. However, it’s critically important that we remain committed in the medium and long term to sound money, low borrowing and balanced budgets.

In short, we need a strategy for putting the country back on a secure financial footing.

I’d like to see the Government set out a plan for bringing our national debt under control at the Autumn Budget, underpinned by a new set of fiscal rules. Wait any longer and day-to-day spending will become progressively more difficult to unwind. The rules themselves should be a clear statement of intent. In a recent report, I argued that the Government should set itself the target of balancing the current budget within three years of the economy returning to normality. In the meantime, we should ensure that the deficit falls year on year. Delivering on this would require us to tackle the problem in three stages.

The first is to take a fresh look at what savings can be made from existing commitments. When inheriting a government department I often asked for a complete list of ongoing spending programmes. I was consistently amazed at the number of vanity projects and out-of-date initiatives burning through cash beneath the surface.

The Treasury’s upcoming comprehensive spending review should be zero-based, meaning that every programme in every department is measured against its importance for recovery and levelling up the country. If a programme isn’t delivering value for the taxpayer, it has no business spending their money.

Some reforms make sense given the wider circumstances. Relaxing regulations on childcare provision, for example, has the potential to rein in a multi-billion-pound government bill whilst also reducing the cost of living and encouraging parents to return to work.

Secondly, the Government should avoid tax increases that weaken the businesses driving our recovery. Trying to restore the health of the Government’s accounts by clawing back money from Britain’s SMEs and entrepreneurs would take a scythe to any green shoots and stymie economic growth.

This would be a good opportunity to commission a system-wide review of our tax system with a view to delivering increases in revenue through improving incentives and minimising distortions.

Above all else, the government must remember that the faster we recover in the short term, the fewer unpopular tax and spending decisions will be needed over the next four years.

Consequently, our third and most important priority is the vigorous pursuit of growth. The objective of this is not only to recover lost ground as swiftly as possible, but to use the pandemic as an opportunity to put an end to the poor growth rates of the past few years and set our country on a path of solid and sustained expansion.

With real interest rates below zero the government can dramatically increase its investment in infrastructure, particularly in left-behind regions. As well as providing an immediate boost to economic activity this would drive improvements in productivity and long-term growth.

Successive governments have discovered the hard way that infrastructure projects are easy to announce, but difficult to realise. We need to simplify the disjointed, dysfunctional framework through which infrastructure is planned and delivered. Strengthening the National Infrastructure Commission and setting up a British Infrastructure Bank would be a good place to start.

When businesses are struggling to stay afloat, the last thing they should have to worry about is new red tape. There should be a moratorium on all nonurgent regulation, and a cross-government review on what existing rules could be temporarily waived.

In the long term, if we want to be world-leaders in high-growth sectors such as life sciences and artificial intelligence we have to develop a regulatory regime that better accommodates innovation and change.

I’m determined to see our country step confidently into its future by making the most of the economic opportunities that Brexit presents. The government has made good progress towards establishing new freeports as a way of driving growth and creating thousands of high-skilled jobs in towns and cities across the UK.

However, you shouldn’t have to live on the coastline or next to a major airport to benefit from our newfound economic freedom. The Government should seek to match it’s maritime ambitions with new enterprise zones for landlocked areas, boosting investment and opportunity as part of our mission to level up the regions.

While the challenge facing my colleagues in government is immense, I am in no doubt that they possess the imagination and resolve to overcome it. Growth is the key to getting us out of this crisis. With the right reforms, we can not only rebuild the economy but put it on even firmer foundations than before.