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.

Photo: Getty
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Tim Shipman's Diary

The Sunday Times political editor on poker, pasta – and being called fat by Andrew Marr.

A couple of Saturdays ago, I was having dinner with my wife at Padella (which serves the best pasta in London) when the phone rang. It was an irate David Davis. “You’re reporting that a friend of mine has said Philip May wants Theresa to quit. It’s not true. I don’t even know Philip May.” I calmly explained that I wasn’t accusing him and I had his friend on tape. “Who was it?” he asked me. I wasn’t saying. “Well, it’s not bloody helpful,” the Brexit Secretary said before hanging up.

The following day, I woke up to watch Philip Hammond explain to the BBC’s Andrew Marr why his cabinet colleagues had leaked me details of how the Chancellor had branded public-sector workers as “overpaid”. “I don’t know who [Tim Shipman’s] sources are,” he said, after inaccurately suggesting that I was being fed information as part of some Brexiteer conspiracy to discredit the cabinet’s leading Remainer.

On Monday, I did an interview with Eddie Mair in the back of a beer garden in Ireland, where I’m playing cricket. In reality, the leaks had much more to do with colleagues irritated at Hammond’s sometimes grating behaviour. Word reaches me that he regards it all as very unhelpful. It seems odd after 16 years in political journalism to have to say this, but we’re not here to be helpful. It might make sense if our politicians gave us less to write about. Over the past three years, they have delighted us enough.

Back for seconds

Voter fatigue is a recognised problem. No one talks about journalist fatigue. We all hope that Theresa May rejuvenates on her Swiss walk (perhaps regenerating into Jodie Whittaker). Thanks to the decision she took when she last went walking, I’m facing the obliteration of another summer holiday writing a second political tome covering the period since my Brexit book, All Out War, up to the general election. What looked at one stage like the boring second album is now a rip-roaring tale of hubris and nemesis. When I asked for title suggestions on Twitter, there were plenty of votes for “Mayhem” and “Mayday”. The most imaginative was: “The Snarling Duds of May”. Sadly, it’s too long for my publisher.

Catching the big fish

The new-found attention from writing books is a double-edged sword. To my delight, then embarrassment, Andrew Marr referred to me twice as “the doyen” of the print lobby. “We keep trying to stop him,” Marr’s editor, the redoubtable Rob Burley, confided at a rival magazine’s summer party. The following week, Marr said: “The biggest fish in the pool, if only physically, is Tim Shipman…” I got a text from a special adviser friend asking: “Are you paying him?” I pointed out that Britain’s best-known political interviewer had just called me a fat bastard live on national television.

New blood

I make my debut on BBC2’s Newsnight alongside Ash Sarkar of Novara Media, one of the new websites that cheerlead for Jeremy Corbyn. She is nerveless and fluent in her mid-twenties, when I was a tongue-tied naif. People who get the Corbyn phenomenon are rightly getting more airtime. Off the air, she tells me that she’s a “libertarian anarchist” and then asks me where I live. “Are you going to smash it up?” I ask nervously. She smiles. Ash’s main concern is to paint the town red in the Saturday-night sense. A Labour MP draws attention to her Twitter biog, which concludes: “Walks like a supermodel. Fucks like a champion. Luxury communism now!” Bravo. I think…

Brexit gamble

I was greatly cheered by the induction in the Poker Hall of Fame of the late Dave “Devil­fish” Ulliott, the player who did the most to create the TV and online poker boom in Britain. Westminster has a few useful card sharps – Paul Stephenson, formerly of Vote Leave, among them – but I don’t know any politicians who play. By contrast, the US presidents Harry Truman, Dwight Eisenhower, Lyndon Johnson and Richard Nixon were all accomplished poker players.

When I worked in the US, I interviewed a member of Barack Obama’s poker circle when he was a state senator in Chicago. The cautious, composed and occasionally bold player he described was the mirror image of the politician we came to know. His Republican rival in 2008, John McCain, preferred the chaotic gambling of the craps table and his erratic campaign reflected that. Too many of the current cabinet seem to be dice men. What we wouldn’t give for Devilfish running the Brexit negotiations.

Blundering through

Anyone who has ever dealt with McCain would have been saddened by the news that he is suffering from brain cancer, but his resilience almost makes you feel sorry for the tumour. McCain is undoubtedly the most media-friendly politician I have ever met. When I travelled on his plane in 2008, he took every question from the foreign press pack and made us feel welcome. Through him, I also met Steve Duprey, the former boss of the New Hampshire Republicans. He was fond of explaining Duprey’s first law: “In politics, before considering malevolence, always assume incompetence.” I have had much cause to remind myself of that over the past three years.

Paranoid android

If you are looking for a summer read, I recommend Jonathan Allen’s and Amie Parnes’s Shattered, a great insider account of Hillary Clinton’s disastrous 2016 presidential election effort. It shows how a flawed candidate with little ability to connect with the public presided over a paranoid regime of advisers engaged in Shakespearean bloodletting that led to them coming a cropper when fighting a charismatic populist. On second thoughts, you could always wait to read my second book this autumn. 

Tim Shipman is the political editor of the Sunday Times. “All Out War” is now available in paperback (William Collins)

This article first appeared in the 27 July 2017 issue of the New Statesman, Summer double issue