Boris Johnson’s grand infrastructure plan needs some small print
Grand infrastructure projects are all very well, but it is the small stuff that delivers the big returns, says Matthew Lynn.
It looks as if the JCBs will be out in force. Hi-vis jackets are going to be compulsory for every minister. And if you don’t like the sound of jackhammers you are going to be in for a rough time. Over the last week, Prime Minister Boris Johnson has started setting out his plans for rebooting the economy as it struggles to recover from the coronavirus. There were lots of big infrastructure projects. And some headline-grabbing industrial policies. But there was not a great deal in the way of small print.
Grands projets, as French presidents like to call them, are a Johnson speciality. As mayor of London, he was always trying to build something or other, and since taking office as PM he has been itching to start breaking ground. HS2 has been given the go-ahead, and a raft of new projects are planned, including new schools, hospitals and roads. His administration is increasingly taking its inspiration from the New Deal, and Johnson is already casting himself as the heir to Franklin D. Roosevelt.
Spectacular infrastructure projects can boost demand and lift productivity (although they can also turn into huge white elephants). Once the work starts, they create jobs, and by improving transport connections, or lowering energy costs, they can sometimes help make companies and regions significantly more competitive. But the most meaningful economic reforms are always at the micro level. And the UK could use a lot more of those. Such as?
Streamline the planning system
One of the biggest challenges in the UK is that we don’t build enough, and what we do build is often not quite right. We have too many half empty shopping malls and not enough houses, and too many failing industrial estates and not enough shared offices for small businesses, or dark warehouses for tech companies. We need to strip away decades of overcautious zoning and green-belt regulations, and make it easier to change the use of existing buildings. That will unleash a building boom and make it easier for entrepreneurs to grow their businesses.
Do away with tech regulation
Next, we should be creating the most tech-friendly regulatory regime in the world. The EU has been waging a crazy war on technology, with regulations such as GDPR stiffing innovation. It is intent on controlling American tech giants such as Amazon and Facebook, but seems to have forgotten that while those companies can swat away new rules, it is start-ups that always suffer. The UK should be a laboratory for new ideas. That will drive a huge increase in investment – and spur growth.
Simplify the tax code
Our tax code it has doubled in length in the last ten years, and the system has become cluttered with tiny reliefs and exemptions that make no difference to anyone (seriously, do we really need a specific tax break for pet cemeteries?). Donald Trump has not had many good ideas. But one has been to insist that Congress repeals two regulations for every new one it introduces. We could adapt that, and force the Treasury to scrap two taxes for every new one it tries to impose.
Simplify employment law
Finally, we need to simplify employment law and regulations to help the growing army of the self-employed and gig workers. That army is close to overtaking the numbers of workers in the public sector, and many of them are high-earning professionals earning plenty of money. As companies lay off millions of workers, the numbers are set to soar even higher. Likewise, the “hustle economy” has boomed in the last five years, with up to a tenth of the workforce making money from a side gig. We could create a special tax and regulatory regime for the self-employed that would compensate them for not getting any of the benefits of staffers, and allow them to take on an assistant without facing all the complications of employment law. Likewise, we could create a hustle tax allowance. If you could earn £5,000 a year from a side gig free of tax, that would be a huge incentive – and some of those hustles would eventually turn into proper companies.