As we approach the forthcoming Budget, we have the opportunity to present ourselves as the party of business which also cares about the dreadful level of inequality in the UK today.
Brexit is obviously the key issue affecting the economy and there is nothing more pro business than our stance of wanting to remain in the Single Market and the customs union. Rising inflation is hitting the low paid particularly hard. Public sector workers need and deserve a proper pay rise. It is a disgrace when one reads that nurses are having to rely on food banks.
Outside of Brexit, fixing the broken housing market has to be our number one domestic economic priority. Ending the scandalous and wasteful right to buy scheme has to be the easiest way of helping to cool the housing market. Enabling local authorities to borrow to build social housing also has to make sense. We spend billions a year on housing benefit tenants, money which could be much better spent on building up affordable housing stock which has been so badly depleted since the 1980s. To address concerns over immigration extra funds have to be made available for house building in areas which have seen higher population growth.
Secondly we need to address the impact the internet is having on our economy and tax base. Business rates are a 19th century tax in the digital age. We need to reform or replace these with an alternative such as a tax on turnover which enables high street businesses to compete more fairly with online equivalents.
When it comes to transport, millions of us waste hours a day commuting on overcrowded public transport to an office when we could work from home. A budget which provides a real tax incentive to encourage staff to work from home could have a huge impact on productivity as well as meaning real savings for hard pressed workers who are sick of train fares chewing up an ever increasing proportion of their income.
Tax simplification reform and cutting the cost of compliance for individuals, small businesses and the self-employed would also be part of my budget. There are 10 million words in our tax laws. Despite being a Chartered Accountant it took me hours to complete my tax return when I used to have a buy to let property, so I feel for those who have to manage their taxes without the help of advisors.
We also have to do something to tackle the debt crisis and lack of savings in our economy. Vince has put forward some sensible proposals on providing debt relief and breathing space for people already deeply indebted.
Finally perhaps the most important lesson of the General Election is the inter-generational unfairness in our economy. A simple way to address this issue would be to remove the higher rate tax relief for pensions savings for those close to retirement. Some of the money saved could be used to provide genuinely affordable child care. The Conservatives have failed to adequately fund the “free” 30 hours promised in 2015. Rates provided by some councils such as mine in Richmond are nowhere the actual cost of childcare. By making good on the promise of genuinely free child care it would also encourage parents back into work, especially in lower paid jobs where child care eats up a large proportion of their after tax income.
Sadly, whatever we may like to plan for now, if we have a hard Brexit and no transition with the EU, all bets are off for the future. Any budget written now may soon have to be ripped up anyway. Who would want to be the Chancellor right now in that scenario?
* Chris Key is dad of two girls, multilingual and internationalist. He is a Lib Dem member in Twickenham who likes holding the local council and MPs to account.
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12 Comments
” Who would want to be the Chancellor right now in that scenario?”
I’ll have a go if no-one else fancies it!
My approach would be to avoid having too much inflation on the one hand and too much recession/depression unemployment etc on the other. I’d let exhange rates float, and also govt deficits float too. No more nonsense about having to “balance the budget”. If anyone wants to buy gilts at a very low rate of interest I’d be happy to sell them and spend the money into the economy.
I’d stop fiddling around with interest rates and, taking back powers from the BoE, fix them for the foreseeable future at something like 1%. The economy would then have to be controlled by fiscal measures alone.
There’s a huge problem brewing over what happens when the the asset bubble known as the SE housing market bursts. The bursting will be blamed on Brexit but the bubble was inflated, which was the real failing, when the UK was part of the EU. That will be the real challenge for anyone in Govt over the next few years.
“How a Lib Dem budget could respond to the real challenges our nation faces”.
And which nation would that be ?
Perhaps it might help to have the assumptions upon which a budget is based clearly stated.
One might be that as the “Market” has so far shown itself to be incapable of inherent stability and equitable distribution, it needs clear governmental involvement.
>I’d stop fiddling around with interest rates
An interesting and pertinent point, given the BoE are now talking about a rate rise because of increasing inflation. Yet, when we look at the causes of the increase in inflation, there is nothing to suggest that increasing interest rates will have any reall effect other than to further increase the rate of inflation.
For example, a major component of the recent increase in the rate of inflation has been the increasing costs of energy, purchased on the world market. So to address this the BoE are proposing to make our borrowings (eg. mortgages, car loans etc.) more expensive and thus further increase the pressure for wage increases…
It would be a canny minority government with 7% mind ..
@Peter Martin
I wonder if there are any Lib Dems that wouldn’t keep the exchange rate floating
@Peter Martin.
“I’d stop fiddling around with interest rates and, taking back powers from the BoE, fix them for the foreseeable future at something like 1%. The economy would then have to be controlled by fiscal measures alone.”
– Bank base rate went unaltered for 7 years. It was only reduced last year because of Brexit. Hardly “fiddling around.”
– Giving the Bank of England independence was probably the best thing New Labour did. Central Bank independence is now the norm across the developed world.
– Why fix them at 1%? Where did that figure come from? Can borrowers afford a rate rise that big? What would be the effect businesses? This looks like a figure plucked from the air.
– Why tie one hand behind your back before undertaking a job? Having access to all the tools in the policy budget seems like prudence.
In summary, no you can’t have the job of Chancellor.
If you study the history of it, there is an eighteen year cycle in the housing market (boom then bust) and we are nowhere near the end of it, though a good case could be made that due to government interference in the financial market in 2008 that cycle now no longer rules and the crash when it comes will be deeper and sooner than expected. Governments can not buck the market and interfering by fiscal means merely delays things, so the next general crash will be much deeper than previously… government therefore needs to run a balanced budget as quickly as possible so that it has some room to manoeuvre when it all goes bust. The idea that the state should pick up the bill for people’s personal debt is complete madness. Brexit, of course, stirs in a huge unknown into things and should not have even been contemplated before getting govn finances and Sterling in good order, and is perhaps the definition of a suicide run.
@ Oliver,
Any Lib Dems who argued for adopting the euro were against floating exchange rates.
@ Tom,
Central Bank independence is a fiction. Like it was the BoE’s free choice to buy up £400 bn of bonds as part of a QE program? Someone in Threadneedle St decided to do that all on their own? The BoE should go back to doing what banks should do and keep out of politics as far as possible. It should not be given the responsibility of hitting inflation targets or ensuring that unemployment in the economy is minimised. We vote politicians into Parliament to do that.
You can disagree with 1% and there’re arguments for higher and lower figures. But, the point is that we should stop reducing interest rates to stimulate the economy. This works for a time as extra borrowing leads to extra spending. But, levels of private debt then build up and later slow down spending. So we have to lower them again and again. We create asset bubbles and the end up pricing young people out of the property market.
We’ve just about reached the end of the road with this in any case. Interest rates are at record lows and cannot realistically fall any further.
@ William Fowler,
“government therefore needs to run a balanced budget as quickly as possible”
It can’t. If it cuts its spending it will cut its income. If it raises taxes it will slow down the economy and collect the same revenue but from fewer transactions.
If money is leaving the economy to pay our net import bill it has to be replenished from somewhere to avoid the economy falling into recession. That has to mean Govt deficit spending.
Housing, inequality and debt seem to be the three big issues. They must be followed quickly by our transport infrastructure. With the fluidity in the labour market, people have to either move house a lot or commute a lot. These aren’t easy issues on our crowded island. We certainly need to increase the government’s income and though growth seems an easy way, some form of taxing the wealthy more would seem sensible. We must encourage exports and become more self sufficient in certain sectors such as food.
One statement I would love to hear from a Liberal Democrat Chancellor is: “The pound in your pocket is worth exactly the same whether you earned it as an employee or self-employed person; whether you received it in rents, dividends or savings interest; or whether it was from a capital gain. Therefore I propose to tax all sources of income equally.”