On Wednesday 26th August 2021 Greg Smith MP delivered a “Tales by the Riverbank” lecture at the University of Buckingham, hosted by Vice Chancellor James Tooley, in which he argued a full return to free market principles is essential to bring about a full and prosperous economic recovery from the Covid-19 pandemic.
The Buckingham MP focused on three key elements - supporting entrepreneurs and disruptors to start-up and build the economy up again; making Britain the most attractive place on earth to do business; and fixing the broken property market by dropping the state interventions that have damaged it so badly. In particular he reflected that state sponsored infrastructure projects such as HS2 would never have seen the light of day if free market principles had been applied, saying the lack of private sector investment or interest in building it should have set alarm bells ringing. Likewise, he made the case as to why ending state intervention in the housing market would let the “invisible hand” of the market determine the real gap between supply and demand ending the need to destroy so much countryside for house building.
After the lecture Greg enjoyed chatting to constituents who had come along to listen and take the debate further.
The full text of Greg’s lecture is below.
Some years, if I’m honest decades, ago, as an enthusiastic young Conservative, I was invited alongside a few friends to dinner at a house in Solihull. Our host, Mike Fisher, the son of one of the most influential chicken farmers in political history, Sir Antony Fisher, was the first to properly introduce me to the works of economists like Hayek and Friedman: more widely classical liberal economics and the intellectual underpinning of the free market.
I’ve always seen politics as a battle of ideas.
It was the ideas I was first exposed to on that evening back in the 1990s that I have studied, tested and explored ever since that sit at the core of my beliefs in the way government and our economy should interact.
It was, of course, Sir Antony Fisher who was one of the founders of the Institute of Economic Affairs - whose country home I am proud to say sits right here at the University of Buckingham – and who remains on the front line of advocacy for free market principles and ideas.
It is my contention tonight that a return to trust in the free market should be our path to economic recovery at home; and as we equally forge new relationships around the world, setting our own trade policy for the first time in decades.
I need not remind anyone in this audience tonight that we are emerging from a pandemic that has changed the world.
Decisions that were taken to control the spread of Coronavirus took us into territory not seen before in peacetime.
Deep state intervention in the economy.
The Treasury borrowing to directly pay people’s wages, deliver grants to businesses, effectively renationalise the railways.
£407bn in national debt.
And I do not present that as a criticism. Hayek himself would have endorsed such state intervention in time of crisis and emergency.
The question: how do we pay it back and more importantly, how do we recover?
How do we ensure the new ‘normal’ is one of prosperity, opportunity and innovation?
And the starting point for that has to be an honest reassessment of what is and what is not the role of the state.
A reminder that there is no such thing as public money, only taxpayers’ money.
Margaret Thatcher once famously said: “The problem with Socialism, is that you eventually run out of other people’s money.”
That must always be coupled with the difficult, but indisputable truth across the ages - as President Reagan, in his own wonderful style, described - that: “Government is like a baby. An alimentary canal with a big appetite at one end and no sense of responsibility at the other.”
History clearly demonstrates what conditions were in place in times of economic growth, not least recovering from a period of downturn and high public sector borrowing.
And we don’t have to look far back in our own history to see that.
There are some fascinating factors to be attributed to our economic recovery following the 2008 financial crisis.
Firstly, the rise in self-employment, entrepreneurialism and business being able to get on not un-hindered, but certainly less-hindered by the state was a central theme.
Indeed, even when unemployment was still rising after 2008, self- employment rose every year.
Even TUC analysis shows that self-employment accounted for 44 per cent of all employment growth 2010 to 2014.
And it is not just those looking for second or third careers that chose such a path, with BBC data showing young people are also keen to become their own bosses - with the number of self-employed workers aged 16 to 24 nearly doubling since 2001.
Before the pandemic started some 5 million people in the United Kingdom were self-employed. A statistic, in my view, to be celebrated.
But a statistic to bring equal concern as we look to the future is that self-employment in 2020 alone fell by over 400,000.
I fear a large part of that is the less favourable manner in which the self-employed were regarded in support packages.
Worst case an interpretation: that difference between self-employed support, particularly for those earning over £50,000 – as well as owner-directors of limited companies who legitimately paid themselves via dividends – and those in PAYE employment meant the state valued the latter more than the former.
That is a fear heightened by a commentary at the time of the Self Employed Income Support Scheme being launched of a change to tax rules of the self-employed going forward.
That is the absolute opposite of what we need.
Just as the rise in self-employment helped us back to growth for much of the last decade, we need those entrepreneurs and a whole new generation of entrepreneurs all over again.
The folks who may well come up with the next Uber or Deliveroo; or be the best builder, plumber, joiner, designer, programmer, engineer, inventor Buckinghamshire has ever produced.
Let’s create tax incentives to start a business. To go solo. To take a risk.
I get why the bureaucrats in the Treasury and HMRC would rather everyone fitted into a neat box, taxed at source and uniform.
But that is blind to the harsh realities of what taking a risk really means: going it alone with no safety net – no sick pay or holiday, no wider corporate body to pick up the pieces if a project goes wrong. Just you and the balance sheet. Sink or swim.
We can, and we must get the State out of the way and that starts with a minimal tax and regulatory burden to set those entrepreneurs free to grow, to thrive, to employ more people, take on an office, create the wealth that will ultimately also increase revenues into the Treasury.
Another great reform that made the United Kingdom a place for businesses to invest and grow during the last recovery. Corporation Tax. The reductions in Corporation Tax need to be heralded and continued – not reversed.
To have got as low as 19% Corporation Tax, from 28% in 2010, is a signal to the world that not only is the United Kingdom is open for business – a place to invest – but understands that to create jobs, to create wealth, to improve the lot of everyone: someone has to take a risk somewhere. We disincentivise that at our peril.
I’ve only been the Member of Parliament for this wonderful constituency for 20 months. But I have already seen first hand the power of the entrepreneur and the difference getting the State out of the way can make to growth.
Take our enterprise zones - up at Silverstone Park and at Westcott.
People with ideas, innovators, taking almighty risks with an idea that could as easily crash and burn as thrive.
Like the incredible Digital Manufacturing Centre: bringing to Buckinghamshire the first of its kind precision 3D printing facility at scale, making everything from production automotive components to prototype parts for Formula 1.
Disruptors, challenging the status quo – stepping things up a gear. Growing our economy, improving products, making life better for end users and businesses alike.
And you know what? From that we all win. Whether it is from the development of the next big thing we all need in our lives; or doing something we already have better and cheaper – a diverse, competitive market place in all sectors drives down prices and cajoles standards up.
We all make daily choices – where to eat out, what products to spend our money on, what gets the thumbs up and what gets the cold shoulder.
But if conditions aren’t right, aren’t appealing, aren’t profitable for the disruptors and the mavericks, those choices won’t get any better. The vested interests, the very big established - some may say “too big to fails” will dumb choice down and monopolise.
Likewise, by stripping back barriers – free from the increasingly protectionist approach of the European Union – we can be the most attractive place on earth for doing business, attracting overseas investment, creating more jobs.
Just this morning Lord Grimstone has written in The Times, launching the Governments Inward Investment Report, highlighting that even in the face of the pandemic, last year foreign investment created more than 55,000 jobs across the UK.
- Nissan’s latest announcement of a £1 billion flagship electric vehicle to be built in Sunderland, alongside a new gigafactory creating 1,650 new jobs;
- To Abu Dhabi’s Mubadala Investment Company’s new £1 billion partnership to invest in UK technology;
- To the Canadian start-up General Fusion, committing to build its fusion demonstration plant next door in Oxfordshire;
The UK is already succeeding. Just imagine how much more inward investment we could attract. The sky really is the limit if we are brave enough to properly embrace the freedoms an independent trade policy affords us.
The alternative model for growth and new jobs is heavily reliant on the State. And to go back to the beginning, that’s where we risk running out of money: and worse we risk spending what money we do have or can borrow as a country on short term solutions with long term pain.
Let’s take a local example. The folly that is High Speed Two.
Heralded in spin as “creating” 22,000 jobs. But all short term, unsustainable: as all on a single project propped up 100% by the British taxpayer.
If we’d followed true free market principles HS2 would never have seen the light of day.
For a true free market economy is blind to politics and is an essential brake on crazy ideas.
In a free market economy, if HS2 was viable – if demand for such a railway was really there - businesses, corporations, individual investors would have been clambering all over it to built it, to take the risk and reap the rewards this imaginary increase in rail demand and desire to get to Birmingham 20 minutes faster would bring.
The fact they weren’t, the fact the whole wretched thing needed to be a creature of the State, paid for, underwritten by us, the taxpayer, should have been warning sign enough.
“Build it and they will come” is more likely to become “indebted and regretted.”
Now I’ve spoken a lot so far about growth and jobs. But free market principles apply in a much broader setting.
Let’s take an important example. The housing market.
It would be easy to characterise being pro-developer, pro-build build build as a free market position. I hope to spend the next few minutes convincing you it’s not.
The relentless drive to ‘build build build’ is creating even more distortion in an already artificially disrupted and failed market.
And the prime culprit for that distorted market is of the state’s making.
If there was ever a case of a tax that doesn’t just distort a market but blows a hole right through the middle of it, it has to be Stamp Duty Land Tax.
It hurts (and I mean really hurts if you live anywhere with high property prices, like Buckinghamshire) if you want to get onto the property ladder.
For if it was not for Stamp Duty seizing up the market, I would wager housing supply would in fact not be too far off demand.
The reality is that many who want to move simply don’t, or worse still absolutely cannot.
A report by SAGAs found 25 per cent of over 50s are struggling to afford the cost of downsizing.
A pensioner moving from a £900,000 home to a £600,000 property, would be hit with a £20,000 bill
This punishes movement within the property chain and makes the supply of already built – existing - family-sized homes and starter homes even tighter.
Abolishing the tax would be an incentive for empty nesters wanting to move, to move now rather than waiting.
We don’t need all these new homes destroying our countryside, creating flood risk - we need to remove the barriers to movement within the existing market.
Let the invisible hand do the work to correct the market: simple supply and demand.
Equally, we all know house prices are soaring and so are deposits.
According to HM Land Registry figures, January 2021 saw average house prices in London surpass £500,000 for the first time.
Research by the Halifax bank showed the average deposit put down by a UK first-time buyer in 2020 was £57,000, compared to £46,000 in 2019.
First-time buyers and any that need a deposit to purchase are unable to borrow against the SDLT charge meaning extra funds are needed to cover the tax.
If the Government is serious about getting more people on the property ladder, it should stop intervening in ways that only penalises aspiring property owners.
And to those who ask where HM Treasury will make the shortfall up. For a start consider the massive uplift in VAT from the thousands of additional home movers spending big on making their new homes their own – buying paint, curtains, carpets, and employing builders, plumbers, carpenters, decorators. The spend would be huge.
Scrapping SDLT would also give the sector a jobs boost.
In August and September 2020, residential property transactions rose by 15.6 and 21.3 per cent respectively. At that point the Treasury claimed this was helping to protect 750,000 jobs.
Ending SDLT would stimulate more jobs leaving less people reliant on the state for support.
And to pump prime the abolition of Stamp Duty would be easy. Stamp Duty receipts over the past decade have ranged from c £6 to £13 billion. HS2 is now projected to be well over £1 billion: let’s scrap it and that’s at least a decade sorted.
So this evening I have merely focused on three areas where free market principles can help us back to recovery.
Rekindling a self-employed entrepreneurial revolution.
Making Britian the best place in the world to set up a business or invest.
And making the housing market work, for buyers and the whole country.
There are countless others.
To return to the beginning, I cannot better end than to reference one of the Institute of Economic Affairs own recent publications by Neil Record who observed the most successful economic period in our recent history came at a time when:
- the top rate of income tax of 40 per cent.
- Corporation Tax ranged from 33 per cent down to 19 per cent, falling throughout the period.
- The highest rate of Stamp Duty on residential property rising from one per cent to four per cent.
- VAT peaked at 17.5 per cent.
- Capital Gains Tax set at the same rate as income tax, but with Taper Relief reducing the rate on shares by up to 75 per cent (i.e. giving a top rate of 10 per cent).
In short, the regulatory burden on all productive sectors was much lighter than today.
The best performing periods of our past had much less financial regulation, much less labour market regulation, more targeted health and safety regulation, with fewer subsidies.
It’s time to rekindle that spirit – and set our economy free.
Take the freedoms Brexit gives to make us the most attractive place to do business in the world.
Reject protectionism.
All of our United Kingdom will be richer for it.
The gap between rich and poor will shrink through new jobs, new opportunities.
People choosing a path for themselves.
The mavericks and disruptors driving standards up and prices down through real competition and choice.
Wealth creation, not artificial state sponsored sticking plasters.
Global Britain can be a great success.
But we need to believe in ourselves first.
Set people free and reap the rewards.
