Why the Tory right's "growth plans" won't work

Scrapping workers' rights and deregulating planning laws won't stimulate growth.

Labour may be most associated with calls for a "plan for growth" but recently they’ve been joined by another force: the Conservative right. Liam Fox was in the Times yesterday arguing for one, and the Free Enterprise Group group of backbenchers also have a book out entitled Britannia Unchained. Some of their ideas, however, might be not be helpful.

Cutting taxes for business

Cutting corporation tax has been proposed as a stimulus for business. There are two arguments behind this: firstly, a lower rate might attract foreign direct investment to the UK, and secondly, reducing the tax rate leaves overburdened businesses with more money, which could help them expand and create jobs.

Let’s first remember that any benefits from foreign corporations setting up shop in the UK would take years to filter through, and so not be suitable as a stimulus. In addition, it's not clear that cutting the rate further would attract much new business anyway. At 22%, the UK already has the fourth-lowest headline rate in the G20 after Saudi Arabia, Russia and Turkey. Comparable countries (Germany 31%, USA 41%, Japan 40%, France 35%), who all do far better in terms of domestic industry, all have higher rates. Any gains in competitiveness would be marginal at best.

As a boost to our existing businesses, a corporation tax cut is also largely pointless. This is because businesses have plenty of cash: UK firms are currently net savers and are sitting on a combined total of £754bn. This is not normal for a healthy market economy, where firms should be borrowing to invest. But there are no available investment opportunities, either because of a lack of demand or because of a more fundamental slowdown in the rate of innovation, and firms are just doing what is rational. Pumping them with more cash would be unlikely to have any effect. Since corporation tax is on a percentage of profits, there is also no reason why cutting it would make previously unprofitable investments viable. A cut in the rate would be unlikely to help.

Making it easier to fire people

The main recommendations to come out of the government’s Beecroft Report were ideas like no-fault dismissal and other restrictions on workers' rights. The stated justification is that firms are too scared to take on employees because it is difficult to get rid of them if they are underperforming.

One of the economic trends that ministers have sought to draw attention to is the contrast between growth and employment. Unemployment has been slowly but consistently falling, despite the economy shrinking. The most common explanation for this is because firms are hoarding labour, so they don’t have to reconstruct a skilled workgroup when demand returns in the future. The Bank of England looked at five indicators of labour hoarding and found that there was good evidence to suggest this is what was happening.

If this is the case, then firms are, in aggregate, feeling quite the opposite way that Beecroft suggests they are: hoarding labour beyond the point you need to is not really consistent with being terrified of taking on workers.

Conversely, if you’re suspicious of the Bank’s findings (and why not?) it could be possible that firms desperately want to get rid of these workers but can’t. This is unlikely because overall the UK labour market is pretty flexible (the third least regulated in the OECD according to the CIPD), but if this were true, then a lot of people would lose their jobs as newly liberated firms sacked with abandon. This would make the Beecroft proposals a recipe for unemployment.

Scrapping planning regulations

The Labour left has led calls for a housing stimulus, mainly composed of council housing. But an alternative take on this comes from Tory elements, within and without government. Get rid of planning laws, they say, and market-led housebuilding will commence.

The evidence suggests this policy has been plucked out of thin air. The Local Government Association reports that there are 400,000 homes with planning permission that haven’t been started by developers or have stalled their construction. Last year in London, where demand is highest, London Councils counted around 170,000 homes that had gained planning permission but were not been built.

This is not a picture of a planning bottleneck. It’s also why claimed successes of previous planning reforms that count permissions granted as delivery should be ignored, and why getting rid of more regulations will likely have higher costs than benefits.

Tory MP and former defence secretary Liam Fox is leading calls for deregulation. Photograph: Getty Images.

Jon Stone is a political journalist. He tweets as @joncstone.

Getty
Show Hide image

Our union backed Brexit, but that doesn't mean scrapping freedom of movement

We can only improve the lives of our members, like those planning stike action at McDonalds, through solidarity.

The campaign to defend and extend free movement – highlighted by the launch of the Labour Campaign for Free Movement this month – is being seen in some circles as a back door strategy to re-run the EU referendum. If that was truly the case, then I don't think Unions like mine (the BFAWU) would be involved, especially as we campaigned to leave the EU ourselves.

In stark contrast to the rhetoric used by many sections of the Leave campaign, our argument wasn’t driven by fear and paranoia about migrant workers. A good number of the BFAWU’s membership is made up of workers not just from the EU, but from all corners of the world. They make a positive contribution to the industry that we represent. These people make a far larger and important contribution to our society and our communities than the wealthy Brexiteers, who sought to do nothing other than de-humanise them, cheered along by a rabid, right-wing press. 

Those who are calling for end to freedom of movement fail to realise that it’s people, rather than land and borders that makes the world we live in. Division works only in the interest of those that want to hold power, control, influence and wealth. Unfortunately, despite a rich history in terms of where division leads us, a good chunk of the UK population still falls for it. We believe that those who live and work here or in other countries should have their skills recognised and enjoy the same rights as those born in that country, including the democratic right to vote. 

Workers born outside of the UK contribute more than £328 million to the UK economy every day. Our NHS depends on their labour in order to keep it running; the leisure and hospitality industries depend on them in order to function; the food industry (including farming to a degree) is often propped up by their work.

The real architects of our misery and hardship reside in Westminster. It is they who introduced legislation designed to allow bosses to act with impunity and pay poverty wages. The only way we can really improve our lives is not as some would have you believe, by blaming other poor workers from other countries, it is through standing together in solidarity. By organising and combining that we become stronger as our fabulous members are showing through their decision to ballot for strike action in McDonalds.

Our members in McDonalds are both born in the UK and outside the UK, and where the bosses have separated groups of workers by pitting certain nationalities against each other, the workers organised have stood together and fought to win change for all, even organising themed social events to welcome each other in the face of the bosses ‘attempts to create divisions in the workplace.

Our union has held the long term view that we should have a planned economy with an ability to own and control the means of production. Our members saw the EU as a gravy train, working in the interests of wealthy elites and industrial scale tax avoidance. They felt that leaving the EU would give the UK the best opportunity to renationalise our key industries and begin a programme of manufacturing on a scale that would allow us to be self-sufficient and independent while enjoying solid trading relationships with other countries. Obviously, a key component in terms of facilitating this is continued freedom of movement.

Many of our members come from communities that voted to leave the EU. They are a reflection of real life that the movers and shakers in both the Leave and Remain campaigns took for granted. We weren’t surprised by the outcome of the EU referendum; after decades of politicians heaping blame on the EU for everything from the shape of fruit to personal hardship, what else could we possibly expect? However, we cannot allow migrant labour to remain as a political football to give succour to the prejudices of the uninformed. Given the same rights and freedoms as UK citizens, foreign workers have the ability to ensure that the UK actually makes a success of Brexit, one that benefits the many, rather than the few.

Ian Hodon is President of the Bakers and Allied Food Workers Union and founding signatory of the Labour Campaign for Free Movement.