Conservative leadership race dominated by tax cuts. Candidates in the Conservative Party’s leadership contest are beginning to outline their economic platforms and there is only one topic on the agenda: tax cuts. The FT’s Sebastian Payne and Chris Giles note: “A dividing line is already emerging between Tory leadership hopefuls focused on maintaining the Johnson government’s approach of investing in public services and those who wish to pursue supply-side reform.” In the former camp is Rishi Sunak, the bookies’ favourite, who is broadly defensive of his economic record and has gone on the attack about ‘fairytale economics’. However the vast majority of the other candidates have argued for a change of economic direction, attempting to woo Conservative MPs and party members with promises that slashing taxes will revive the UK’s economic fortunes, an argument which is fast becoming orthodoxy within the governing party. (A reminder that Conservative MPs are significantly more right wing in their economic values than conservative voters, and the wider public.)
How will this be funded? The IFS’s Paul Johnson has warned tax cuts might require “dramatic” cuts to the welfare state and other areas of public spending and that it is “nonsense” to expect them to pay for themselves, e.g. through more tax receipts through economic growth. Nadhim Zahawi has already said he plans to cut funding for staff by 20% in every government department in order to pay for his proposed tax cuts. (Polling commissioned by Tax Justice UK shows that Conservative voters are “far from supportive of tax cuts, particularly if that means cuts to public services”.)
Inflationary risks and the cost of living. Some economists, two former Conservative chancellors and the former head of the Treasury have warned that a “Dutch auction of tax cuts” may be inflationary due to increasing demand. The OBR’s annual assessment of risks to the public finances last week also warned that cancelling Rishi Sunak’s planned rise in corporation tax to 25% (as Nadhim Zahawi promised today) could stoke inflation higher: “If [tax cuts] are financed by greater borrowing, it puts more pressure on and arguably comes with additional risks in an economy that is running with high inflation”. (Polling by Tax Justice UK also found that 74% of 2019 Conservative voters support an increase in corporation tax.)
Tax cuts are poorly targeted. Economist Jonathan Portes explains why “broad-based, badly targeted tax cuts…will do little to help those who need it most”. Resolution Foundation’s Torsten Bell points out “only a fifth of the benefit of an income tax cut would go to the entire poorest half of the population.” (Also read our analysis of why business tax breaks such as the ‘Super deduction’ are a poor response to the cost of living crisis.)
Long-term solutions to UK stagflation. Leader of the Opposition Keir Starmer has dismissed the Conservative leadership election as an “arms race of fantasy economics.” The FT’s Martin Wolf also doubts that the Conservative leadership candidates will provide any solutions to the UK’s stagnant economy: “The answer will not be tax cuts: taxes are already lower than in our European peers. Nor will it be deregulation: the UK economy is relatively deregulated, except in the use of land. It will depend on higher investment and bringing lagging firms and regions to the frontier. It will depend on improvements in corporate governance and capital markets, which encourage investment and innovation. It will depend on exploiting the energy revolution, to accelerate growth and lower emissions.“
Back the environment or lose votes? Ditching net zero would be “electoral suicide” for Conservatives, say Zac Goldsmith and Chris Skidmore. As the Conservative Party leadership contest gets under way, the two Conservative politicians argue that climate and the environment are not “peripheral” issues as some candidates may argue, urging them to back green policies or risk losing “the support of a broad coalition of voters”.
Biodiversity crisis. The accelerating global biodiversity crisis will have a profound effect on humans, according to a new report by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES). Wild species meet the needs of “billions” of people worldwide through food, fuel and incomes. However, this is under threat as roughly one million species of plants and animals are facing extinction.
Climate mitigation and colonial inequalities. Existing climate mitigation scenarios tend to perpetuate colonial inequalities between the global North and South, argue Jason Hickel and Aljosa Slamersak. Existing mitigation scenarios reviewed by the IPCC prioritise the global North’s “energy privilege”, Hickel argues.
Shareholder power. Antonio Falato, Hyunseob Kim and Till von Wachter explore how shareholder power has grown in the US over recent years and the effect this has on employment and wages. They find that highly concentrated institutional ownership is associated with lower employment and wages and that this correlation is “more pronounced in industries where labor is relatively less unionized”.
Former MPC member attacks wage-price spiral hysteria. Economist and former member of the Bank of England’s Monetary Policy Committee Danny Blanchflower explained why “a wage/price spiral isn’t inevitable” as “bosses and shareholders could easily absorb the hit - it is now their turn”.
The ‘Uber Files’. The Guardian explained how the US tech giant Uber “flouted laws, secretly lobbied governments and exploited violence against drivers” after former Uber lobbyist turned whistleblower Mark MacGann leaked over 124,000 documents to the press.
A “new economic paradigm”? A new economic policy framework rooted in “production, work, and localism instead of finance, consumerism, and globalism” may capture “imaginations across the political spectrum”, argues economist Dani Rodrik. Rodrik says that we may be seeing the beginnings of a transition from neoliberalism to ‘productivism’, “which emphasizes the dissemination of productive economic opportunities throughout all regions and all segments of the labor force”.
Progressive Economics 2022. The Progressive Economics 2022 conference, hosted by the Progressive Economy Forum (PEF), brought together thinkers “from across the progressive movement to present the arguments and solutions we need to build a radically better economy”. Discussions included ‘Workers and the Crisis’, ‘Beyond the Green New Deal’ and ‘A Caring Economy’. You can listen to all of the sessions online here.
Energy bill emergency. “We are getting close to a position of civil disobedience” argues Money Saving Expert’s Martin Lewis as he warns of a “very very bleak winter” due to predictions that energy bills will rise higher than a third of the state pension when the energy price cap is raised in October. He warned “the help packages that were in place are no longer fit for purpose”.
France nationalises EDF. France is to bring EDF fully into public ownership in response to the energy crisis, with the French state currently having a 84% stake in the company. The new French Prime Minister Élisabeth Borne said that the state “must have full control over [its] electricity production and performance”, in her first address to Parliament.
Energy for all? The Social Guarantee and Fuel Poverty Action propose that everyone should be provided with free access to a basic level of energy (factoring in age, disabilities and household size) charging on a sliding scale for what’s used above that amount. The Social Guarantee argues that covering the cost of a basic amount of energy would encourage people to use less energy, encourage the government to invest in cheap renewables and promote mass insulation of homes.
Onward’s proposals for the electricity market review. Without reform, the Government’s 2035 target for 100% low-carbon electricity is at risk, according to new research by the think tank Onward. The paper argues that the Government’s Review of Electricity Market Arrangements (REMA) must address 11 key issues through three major programmes of reform targeting wholesale and balancing markets, investment-support schemes, and supplier regulation. The Tony Blair Institute’s Daniel Newport outlines the various complexities government departments will have to consider. (NEF’s Chaitanya Kumar assesses a ‘dizzying number’ of proposals for energy market reform in a comprehensive thread.)
Renewables four times cheaper than gas. The Government’s latest Contracts for Difference auction shows that renewables are four times cheaper than gas, securing around 11GW of clean energy - enough to power 12 million homes. Carbon Brief’s Simon Evans outlines the key figures, including a record low price for offshore wind.