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.

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Cabinet audit: what does the appointment of Andrea Leadsom as Environment Secretary mean for policy?

The political and policy-based implications of the new Secretary of State for Environment, Food and Rural Affairs.

A little over a week into Andrea Leadsom’s new role as Secretary of State for Environment, Food and Rural Affairs (Defra), and senior industry figures are already questioning her credentials. A growing list of campaigners have called for her resignation, and even the Cabinet Office implied that her department's responsibilities will be downgraded.

So far, so bad.

The appointment would appear to be something of a consolation prize, coming just days after Leadsom pulled out of the Conservative leadership race and allowed Theresa May to enter No 10 unopposed.

Yet while Leadsom may have been able to twist the truth on her CV in the City, no amount of tampering will improve the agriculture-related side to her record: one barely exists. In fact, recent statements made on the subject have only added to her reputation for vacuous opinion: “It would make so much more sense if those with the big fields do the sheep, and those with the hill farms do the butterflies,” she told an audience assembled for a referendum debate. No matter the livelihoods of thousands of the UK’s hilltop sheep farmers, then? No need for butterflies outside of national parks?

Normally such a lack of experience is unsurprising. The department has gained a reputation as something of a ministerial backwater; a useful place to send problematic colleagues for some sobering time-out.

But these are not normal times.

As Brexit negotiations unfold, Defra will be central to establishing new, domestic policies for UK food and farming; sectors worth around £108bn to the economy and responsible for employing one in eight of the population.

In this context, Leadsom’s appointment seems, at best, a misguided attempt to make the architects of Brexit either live up to their promises or be seen to fail in the attempt.

At worst, May might actually think she is a good fit for the job. Leadsom’s one, water-tight credential – her commitment to opposing restraints on industry – certainly has its upsides for a Prime Minister in need of an alternative to the EU’s Common Agricultural Policy (CAP); a policy responsible for around 40 per cent the entire EU budget.

Why not leave such a daunting task in the hands of someone with an instinct for “abolishing” subsidies  thus freeing up money to spend elsewhere?

As with most things to do with the EU, CAP has some major cons and some equally compelling pros. Take the fact that 80 per cent of CAP aid is paid out to the richest 25 per cent of farmers (most of whom are either landed gentry or vast, industrialised, mega-farmers). But then offset this against the provision of vital lifelines for some of the UK’s most conscientious, local and insecure of food producers.

The NFU told the New Statesman that there are many issues in need of urgent attention; from an improved Basic Payment Scheme, to guarantees for agri-environment funding, and a commitment to the 25-year TB eradication strategy. But that they also hope, above all, “that Mrs Leadsom will champion British food and farming. Our industry has a great story to tell”.

The construction of a new domestic agricultural policy is a once-in-a-generation opportunity for Britain to truly decide where its priorities for food and environment lie, as well as to which kind of farmers (as well as which countries) it wants to delegate their delivery.

In the context of so much uncertainty and such great opportunity, Leadsom has a tough job ahead of her. And no amount of “speaking as a mother” will change that.

India Bourke is the New Statesman's editorial assistant.