Boris Johnson, our new PM, will have to act fast to put Britain back on its feet, say Matthew Lynn.
Boris Johnson is our new prime minister. But his cautious campaign, long on optimism but light on actual policies, doesn’t give us much of a clue as to what Boris-onomics will actually look like. Yet the tasks facing him are clear. The arguments over our departure from the EU will have to be resolved before they consume him. The economy will have to be rescued from a potential recession. And he will have to come with a programme that will have popular appeal and restore the country’s standing in the world. Here are the three places he should start.
1. Prepare for no-deal
Three years after the referendum, the UK is still not quite ready to get out, but it is getting close. Companies are making the necessary preparations and customs and tariff infrastructure are being put in place. A last minute deal might emerge. But by then it won’t matter very much. Most of the costs from leaving without a deal are one-off, and once the money has been spent it doesn’t make any difference whether you strike an agreement or not. By early October Johnson should be in a position to terminate the talks, saying he no longer wants a deal now or in the future.
2. Prepare an emergency budget
After the timid, bland tinkering of Theresa May and Philip Hammond, it is time to be bold. The global economy looks to be heading into a slowdown, and the eurozone recovery has already run out of steam. Britain can’t hope to be exempt from that. The damage from leaving the EU will not be nearly as bad as the wilder predictions from the Treasury and the Bank of England suggest. But it will be real all the same, and some industries will be hit. A 1% or 2% drop in GDP is a possibility.
Fortunately, the public finances are back in respectable shape and the government can move quickly to pump up demand with a round of spending. The priorities? Johnson took a lot of flak for suggesting it, but the 40% tax rate genuinely does kick in at far too low a rate. It has been a long time since the basic rate was cut, but that would help tackle low pay as effectively as increasing the living wage. Specific sectors, such as cars and agriculture, are going to need help to get through leaving the EU – this might be the one occasion when subsidies, so long as they are time limited, can actually be justified. All that will need to be done by the end of August.
3. Reform and simplify taxes
What Britain needs is a round of pro-enterprise, pro-business reforms to simplify our tax system and make it the most competitive in the world. Over nine years in government, either by itself or in coalition, the Tory party has been dominated by the political opportunism of George Osborne and the dull managerialism of Hammond. Nigel Lawson was the last genuinely reforming Tory chancellor, and that was 30 years ago. The UK needs to liberalise.
Business rates are killing off the high street and need to be reformed: retailing might die out, but there is no need for the government to kill it. Our corporate taxes are already low, but cutting the rate to 10% would make it the lowest in the developed world and would make the UK an attractive place to invest despite leaving the EU’s single market. We should be embracing new technologies, from drones, to artificial intelligence, to lab-grown meat, so that the UK attracts investment from around the world as well as building its own technology companies. That won’t happen overnight. But Johnson’s instincts are to encourage innovation and entrepreneurship, and he should unleash that on day one.
After three years of obsessing about leaving the EU, the country badly needs to move on. There are bigger and more important issues to worry about than membership of a not terribly successful trade bloc. It remains to be seen whether Johnson can achieve that. But if he is to have any chance, then he needs to hit the ground running – he will only have a few months to make a success of his premiership.