Newsletter #61: Reform pivot from tax cuts to fiscal consolidation

PLUS: The absurdity of the Labour reshuffle

Good morning.

Today, we examine Reform’s economic policy agenda, and their pivot away from immediate tax cuts towards fiscal consolidation; review the Labour reshuffle from the perspective of two months on; and, in some more light news, take a look at the ‘Youth Parliament’.

This newsletter’s agenda: Reform pivot from tax cuts to fiscal consolidation (free/paid); The absurdity of the Labour reshuffle (paid); Britain’s ‘Youth Parliament’ needs Reform (paid).

Reform pivot from tax cuts to fiscal consolidation

Laying out his vision for the British economy this week, Nigel Farage sought to cast Reform as the government in waiting, saying he would drop their manifesto promise of £90 billion in tax cuts, and instead focus on cutting public spending and reducing public debt. Reform will keep its pledges to restore inheritance tax relief for small farmers, as well as lifting the two-child benefit cap for families where both parents are in work, but will be a government of sweeping ‘deregulation’ rather than major tax cuts. In a sentence, Reform wants to be ‘most pro-business, pro-entrepreneurship government this country has seen in modern times’, but will not substantially lower taxes due to the ‘dire state’ of the public finances.

Of course, many readers of Pimlico Journal — being in that admirable class of ambitious, hardworking young men that make up the ‘London and Home Counties grotesque’ — will be disappointed. The tax burden is at its highest in at least seventy years. The country hasn’t seen real economic growth for almost two decades. Tax freedom day is now later than at any time since records began. But without a more fundamental rethink of government spending — especially on welfare — than Reform can currently countenance, it’s difficult to see where the fiscal headroom for major tax cuts could come from (George Spencer outlined how a Reform government could go further on their proposed welfare cuts last week).

At the electoral level, Farage’s commitments are probably a necessary move to woo over not only right-leaning voters sceptical of Reform’s economic credibility and recent pledges to nationalise the steel and large parts of the utilities industries, but also shore up a perceived weakness in the City of London (notably his speech was given at Banking Hall, just a stone’s throw from the Bank of England) and investor confidence in a Reform government.

So it makes sense politically. But clearly there are big questions about how Reform will actually generate economic growth. Reform’s answer is to raise productivity by encouraging a ‘culture of risk taking’, massive deregulation and bringing businesspeople into government. They want a ‘Big Reform’ akin to the ‘Big Bang’ of the 1980s that would entail a massively simplified tax code, less cumbersome KYC procedures, and less regulators. In Farage’s own words:

We have not taken advantage of the opportunities to deregulate and become more competitive. The harsh truth is that regulations and regulators, in many areas, are worse than they were back in 2016… We will free businesses to get on and make more money. We will bring into government people with real expertise in their areas. And we will signal a change of attitude towards work, making money and success.