Free markets are in a headlong retreat around the world. UK Prime Minister Rishi Sunak is trying to shore up free market ideals to solve Britain’s woes but he recently hit a wall when negotiations for a free trade agreement with Biden faded. Stubbornly high inflation and augmenting interest rates are looming on Britain, and Sunak is bound to back what the Bank of England decides.
There is no question that free trade prospects in the UK are lagging, but there is more at stake than simply the arrest of British economic growth. A free economy gives rise to virtuous citizenry, promotes desirable social ends by means of employment, and reduces poverty—noble goals that were developed over the last two centuries. Common traders set in motion the economic turn that made Britain great, and it’s worthwhile to briefly recall this history to put the current situation into perspective.
From the early 18th century, when the idea of free trade was first broached by Robert Walpole in 1721, fifty years before Adam Smith’s Wealth of Nations was published, and throughout the 19th century, Britain developed its rich and lasting legacy of a free economy. Merchants, with the support of the British Parliament, were eventually able to overturn the arcane ‘protectionist’ attitudes leftover from the centuries-old Navigation Laws, so that by the early 19th century, business owners were confident that Britain’s industry was sufficiently thriving without the need for protection against foreign competitors.
In 1820, the merchants of Britain’s growing trading cities petitioned the House of Commons for the termination of all duties, leading to the 1823 Reciprocity of Duties Act, a courageous initiative which authorized Britain to sign mutual trading agreements. This decision was made by the Tory Government with the concurrence of the Whig opposition, having come to believe free trade would increase prosperity. As a result, the dated Navigation Laws that had underpinned the policy of protection of British goods for over two centuries, were repealed. These early British economists observed how free trade could raise Britain’s per capita real income. By the 1850s, all major protectionist restrictions had been abolished.
Now, despite their historical success, free markets have fallen out of favor among some conservatives and the traditions of free trade and low taxes are currently at bay.
What of Prime Minister Rishi Sunak?
Sunak’s ministerial appointment continues to cause discontent. Unlike his counterpart, Liz Truss, Prime Minister Sunak raised corporation tax from 19% to 25% from April 1st, 2023. He hiked up personal taxes by increasing Britain’s employees’ and employers’ social security taxes by 1.25% each—against a pledge not to—later ascertaining that he was a “low tax Conservative”, but that tax cuts would have to wait until the economy and public finances reached a stable state. “We’ve got to get inflation down first, get borrowing under control and then we’ve got the sound fundamentals to cut taxes,” he further added in an interview with the ConservativeHome website. However, high and complicated taxes, and low investment incentives, are the very impediments to Britain’s growth and flourishing free economy, concluded the Treasury Committee and The Economy 2030 Inquiry.
On 16 June 2023, the Treasury Committee called for accountability of government efforts to streamline the UK’s complex and burdensome tax system. In a new report, the cross-party Committee of MPs concluded that the UK’s “overcomplicated tax system is an impediment to economic dynamism, creating compliance burdens, confusion, and disincentives to work or grow a business.” The UK’s trade barrier index score is eight globally.
In 2021, the Resolution Foundation and the Centre for Economic Performance at the London School of Economics set up “The Economy 2030 Inquiry” that evaluates the potency and drawbacks of the UK economy and lays out an economic strategy for the 2020s encouraging growth. Its interim report, “Stagnation nation,” notes the UK’s poor investment track record in comparison to the economies of America, France, and Germany, which have greater productivity. The UK’s average productivity gap with France, Germany, and the U.S. nearly doubled, “to 16%, between 2008 and 2019.”
The data verifies that recessive growth is responsible for Britain’s flatlining wages—growth of wages fell to below zero in the 2010s. By 2018, typical household incomes were 16% lower in the UK than in Germany and 9% lower than in France. The data also points to a dramatic stagnation in the UK due to the coupling of low growth and salary inequalities, mostly felt by low-to-middle income Britons. Low-income households in the UK are 22% poorer than their counterparts in France.
What is the way forward?
The “Stagnation nation” report, despite the disheartening data, is the bearer of some good news. It encourages the government to focus on science and to build on the success of the UK’s existing services economy. The most apt manufacturing opportunities for the UK are in the chemicals and machinery sectors. It is essential to support future areas of strength that are aligned to existing capabilities, which also includes the production of equipment, clean technology, and energy.
A solution for low investments
Taxation matters, and investment calls for lower corporation and personal taxes. The Chancellor of the Exchequer, Jeremy Hunt, has already acknowledged the need for a strategic plan evaluating how the corporate tax system can encourage capital investment and R&D. In a letter addressed to the Treasury in March 2023, Mr. Hunt claims:
Tax simplification is a key objective for the tax system: the government wants the tax system to be simple, fair and to support growth. Simplifying the tax system reduces the time and money businesses and individuals spend on tax administration and boosts productivity. When making decisions, the government also has to consider other objectives for the tax system, which include raising revenue, incentivizing certain behaviors, or tackling avoidance and evasion. There sometimes are trade-offs between these objectives.
The chancellor and the prime minister are of the same mind—the first priority of the government is not cutting taxes, or its simplification, however the intention to do so has been communicated. Once taxation is sorted, greater investment incentives will hopefully take effect.
Conservatives Need to Re-embrace the Free Market
Free markets are in a headlong retreat around the world. UK Prime Minister Rishi Sunak is trying to shore up free market ideals to solve Britain’s woes but he recently hit a wall when negotiations for a free trade agreement with Biden faded. Stubbornly high inflation and augmenting interest rates are looming on Britain, and Sunak is bound to back what the Bank of England decides.
There is no question that free trade prospects in the UK are lagging, but there is more at stake than simply the arrest of British economic growth. A free economy gives rise to virtuous citizenry, promotes desirable social ends by means of employment, and reduces poverty—noble goals that were developed over the last two centuries. Common traders set in motion the economic turn that made Britain great, and it’s worthwhile to briefly recall this history to put the current situation into perspective.
From the early 18th century, when the idea of free trade was first broached by Robert Walpole in 1721, fifty years before Adam Smith’s Wealth of Nations was published, and throughout the 19th century, Britain developed its rich and lasting legacy of a free economy. Merchants, with the support of the British Parliament, were eventually able to overturn the arcane ‘protectionist’ attitudes leftover from the centuries-old Navigation Laws, so that by the early 19th century, business owners were confident that Britain’s industry was sufficiently thriving without the need for protection against foreign competitors.
In 1820, the merchants of Britain’s growing trading cities petitioned the House of Commons for the termination of all duties, leading to the 1823 Reciprocity of Duties Act, a courageous initiative which authorized Britain to sign mutual trading agreements. This decision was made by the Tory Government with the concurrence of the Whig opposition, having come to believe free trade would increase prosperity. As a result, the dated Navigation Laws that had underpinned the policy of protection of British goods for over two centuries, were repealed. These early British economists observed how free trade could raise Britain’s per capita real income. By the 1850s, all major protectionist restrictions had been abolished.
Now, despite their historical success, free markets have fallen out of favor among some conservatives and the traditions of free trade and low taxes are currently at bay.
What of Prime Minister Rishi Sunak?
Sunak’s ministerial appointment continues to cause discontent. Unlike his counterpart, Liz Truss, Prime Minister Sunak raised corporation tax from 19% to 25% from April 1st, 2023. He hiked up personal taxes by increasing Britain’s employees’ and employers’ social security taxes by 1.25% each—against a pledge not to—later ascertaining that he was a “low tax Conservative”, but that tax cuts would have to wait until the economy and public finances reached a stable state. “We’ve got to get inflation down first, get borrowing under control and then we’ve got the sound fundamentals to cut taxes,” he further added in an interview with the ConservativeHome website. However, high and complicated taxes, and low investment incentives, are the very impediments to Britain’s growth and flourishing free economy, concluded the Treasury Committee and The Economy 2030 Inquiry.
On 16 June 2023, the Treasury Committee called for accountability of government efforts to streamline the UK’s complex and burdensome tax system. In a new report, the cross-party Committee of MPs concluded that the UK’s “overcomplicated tax system is an impediment to economic dynamism, creating compliance burdens, confusion, and disincentives to work or grow a business.” The UK’s trade barrier index score is eight globally.
In 2021, the Resolution Foundation and the Centre for Economic Performance at the London School of Economics set up “The Economy 2030 Inquiry” that evaluates the potency and drawbacks of the UK economy and lays out an economic strategy for the 2020s encouraging growth. Its interim report, “Stagnation nation,” notes the UK’s poor investment track record in comparison to the economies of America, France, and Germany, which have greater productivity. The UK’s average productivity gap with France, Germany, and the U.S. nearly doubled, “to 16%, between 2008 and 2019.”
The data verifies that recessive growth is responsible for Britain’s flatlining wages—growth of wages fell to below zero in the 2010s. By 2018, typical household incomes were 16% lower in the UK than in Germany and 9% lower than in France. The data also points to a dramatic stagnation in the UK due to the coupling of low growth and salary inequalities, mostly felt by low-to-middle income Britons. Low-income households in the UK are 22% poorer than their counterparts in France.
What is the way forward?
The “Stagnation nation” report, despite the disheartening data, is the bearer of some good news. It encourages the government to focus on science and to build on the success of the UK’s existing services economy. The most apt manufacturing opportunities for the UK are in the chemicals and machinery sectors. It is essential to support future areas of strength that are aligned to existing capabilities, which also includes the production of equipment, clean technology, and energy.
A solution for low investments
Taxation matters, and investment calls for lower corporation and personal taxes. The Chancellor of the Exchequer, Jeremy Hunt, has already acknowledged the need for a strategic plan evaluating how the corporate tax system can encourage capital investment and R&D. In a letter addressed to the Treasury in March 2023, Mr. Hunt claims:
The chancellor and the prime minister are of the same mind—the first priority of the government is not cutting taxes, or its simplification, however the intention to do so has been communicated. Once taxation is sorted, greater investment incentives will hopefully take effect.
“Unloading tea-ships in the East India docks,” from the Illustrated London News (1867).
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