Guernsey Press

‘We need growth’

Things are grim for a lot of people and rising taxes are only going to make things worse, says Andy Sloan – so where is our economic strategy?

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I WAS our designated shopper during lockdown. I enjoyed my daily dose of freedom. It’s a household chore that I’ve kept, not least as it’s not really a chore. And I get to keep tabs on prices. Gosh things have gotten expensive, haven’t they?

You’d have to be living in a cave not to be aware that inflation is now 10%-plus. And that’s headline rates. What’s it like on the ground? What’s ‘my experience’ of inflation, to go a bit woke.

To be frank, a lot more than that. I went to buy a tin of beans the other day, just a half size one I decided – I’m bored of getting it in the neck from my wife for leaving half a tin in the fridge going bad. £1.28. £1.28! I couldn’t bring myself to do it. It just felt wrong. So I chanced it and bought a normal-sized tin and hoped to remember when I next left some in the fridge.

This is a flippant way to make a serious point. The cost of living is way higher than a year or two years ago. And it was already way higher that it was a decade ago. Food, fuel, rents and mortgages. Mortgages, ouch. If you’re having to refix right now from a five-year, chances are that your interest rate will be two to three times more. An extra £20,000 or so in interest payment needed for a typical sized mortgage for an average priced house.

I haven’t even mentioned taxes. I’m sure we’re all fully aware by now that the tax burden has risen significantly in the last 15 years.

And to think we’ve been shielded from the worst of the energy price spikes. Last January I said that inflation would make things tough. Truth is things are grim for a lot of people.

I spoke at the Insurance Institute conference last autumn. I presented a series of charts of the historic performance of various macroeconomic indicators. Inflation, interest rates, global debt trade balances, fiscal balances, the works. All pointed to a convergence of bad news. The good news, I said, is that this is all (we hope) a transitory phase we’re going through. But the bad news is that things might be transitory for quite a while and our underlying economic performance is poor too.

‘Secular stagnation’, the phrase coined to describe weak growth in the decade following the financial crisis, clearly isn’t over. Rather cheerlessly, I’ve got a book, Fully Grown, that explains there’s no more. Growth that is. Secular forces are at play, it argues. It’s inevitable. That’s it. Game over.

Against this backdrop, the lack of economic policy debate is quite disturbing. I’ve talked about the global policy consensus and the problem that there’s nothing outside of mainstream thinking. Except there isn’t any actual mainstream thinking to speak of on this issue. There’s no major policy debate going on. No philosophical tussle trying to win over the hearts and minds of the electorate as to the right economic path.

Frankly, I’ve no idea what the UK government’s economic strategy is. Nothing springs to mind. Halving inflation, which is all I can recall as an economic objective, on its own is not a long-term strategy. Same goes for the opposition parties. I’m at a loss.

It seems, though, that within all this nothingness, there’s an acceptance of the worsening of affairs. This meek acceptance that spending is rising. That tax burdens increasing are an inevitability. All familiar stuff sadly. And that’s the message of this leader column:

‘Supporters of high taxes ... take it as an article of faith not just that spending cannot be cut, but that it will continue to rise as a share of GDP because of population ageing: as a result, the Government’s primary job is to gradually increase taxes to prevent a fiscal crisis. This is foolish defeatism mixed with denial of the growth-destroying effect of such an approach.’

No, these aren’t my words, nor are they the words of any of the long line of critics of P&R’s tax review in recent weeks. It’s a leader column from the Daily Telegraph a few weeks ago. Obviously referring to the UK but its uncanny how it could easily have been referring to Guernsey.

Last autumn, I wrote that Guernsey had caught a bit of what I termed the British disease, a taste for ever-increasing public spending. Turns out that we seem to have many more issues in common with the mainland. Not least the biggest in that we both have the underlying problem of a stagnating economy.

A couple of weeks ago I set out some facts that I felt were germane to any review of our tax system.

First up, that underlying economic growth has been very weak, driven by a shrinking finance sector. A situation masked by rampant growth in the business services sector (AKA compliance and audit). I say masked because these services are effectively finance sector input costs. Broadly speaking, what we’ve been selling to pay our way in the world has gotten a hell of a lot more costly for us to produce. Our terms of trade have gotten a lot worse over the last 15 years. We don’t calculate trade balances, but if we did, the figures would not be pretty. Which rather underlines another problem. There seems to be little notion among policy makers of the negative impact on our economic competitiveness the last 15 years have had. And no one seems to care.

I had an interesting exchange with a Big Four staffer at a corporate do the other night. I was bemoaning the sweeping large rises in advisory and audit fees. Their response was to query the problem. These things are just passed on to clients, they demurred. Clearly that’s what’s happening in the advisory and audit world. But in the fiduciary and funds administration sector? To my knowledge, not so much.

Second up was the fact that public spending growth had outstripped GDP growth by a sector of nearly three to one. My point was, and is, that this is unsustainable. To bring things into balance, spending growth needs to be curtailed and economic growth needs to improve. We need a balanced approach to the problem. That was what I intended to be my contribution to the debate. A politically agnostic point, I thought. Economic growth is what pays for increased services. Without it, public spending growth is unsustainable.

We need growth and our lack of growth is a problem.

I thought the numbers I published demonstrated the point clearly. It’s a topic that should be being discussed. But so far? I’m not aware of it. There was a sneer from some in the Twittersphere that my comments were ‘all a bit Liz Truss’.

Serendipitously, she’s back in the spotlight, having obviously decided that enough water has flowed under the bridge to start to publicly defend her record. I’m proud to say that I was one of the few to commend her focus on growth last autumn. And economic commentators are coming to the view that her identification of the problem, the lack of growth, if not her rather hurried actions to rectify it, was spot on.

Whether or not our tax debate is over by the time this is published won’t change the fact that there’s no consideration of the impact on the economy of any of the proposals (plan A, B, C, D, fairer/unfairer/[insert here, whatever]/alternative).

No consideration of the economic sustainability of the proposals. In fact, no discussion of the economy. Nothing. I was told the inner circle working on the tax review comprises accountants and more accountants. It shows. The whole approach is just a bookkeeping exercise. And things have now degenerated into speed bookkeeping.

This approach to policy making doesn’t augur well for a rise in our living standards any time soon. Stock up on those beans.