Sources of Economic Growth

Most economists agree there are four possible sources of economic growth, namely

• Productivity from investment in new technology for the means of production and in infrastructure
• Increased international trade, including increased share of our domestic market for British companies
• Reduced unemployment
• Cheaper supplies of raw materials including energy

Increasing consumer demand by cutting taxes or increasing government expenditure is NOT one of them, though may help indirectly to achieve one or more of the above. Interest rates are a better way of managing demand in the economy.

There is no mystery as to why the UK has suffered a productivity gap over the past 25 years. It is caused principally by our increasing trade deficit with the EU (see above) and by mass immigration. By contrast the banking crisis had little long-term effect. Quantitative easing replaced the lost credit within a few years and the banks then returned to trading as normal. This did not create inflation as the new money simply replaced the amount lost leaving the total in circulation the same as before. Unfortunately the Coalition and Tories then re-started QE in order to boast about how many jobs they were creating, but because of open borders this simply sucked in even greater numbers of immigrants. The resulting wage compression kept inflation under control so the Bank of England failed to intervene with higher interest rates, and all the while our pansy establishment refused to acknowledge the damage occurring because of their love affair with both the EU and immigration.

Investment requires reasonable profitability to obtain funding and provide confidence. There is a bonkers school of thought, even amongst some Nobel prize-winning economists, that squeezing companies with higher costs or greater import competition will somehow force them to become more efficient. The only thing that will force them into is bankruptcy.

The private sector does not have a monopoly of creating economic growth. It can also come from more efficient public services and infrastructure investment. But the private sector is better at allocating available resources more effectively through the purchase decision and profit motive provided competition is maintained. Putting HS2 out to competitive bidding would have saved us sackloads of money. And if you get no bids that means it is not viable so don’t do it. Regional imbalances can be tackled much more effectively in other ways.

Trade deals with other countries will depend on the balance of the deal. If the resulting increase in the volume of imports is greater than that of exports then growth is undermined. There is another bonkers school of thought that says that all free trade is beneficial regardless. Our experience with the EU (see over) surely disproves that one. To recover our trade with the EU must now be a high priority and will almost certainly require import tariffs. Although there are provisions in the TCA which allow us countervailing measures if there has been a clear deterioration, we don’t have time to wait for the lawyers. It is unlikely the EU will retaliate significantly since WTO rules require members to apply the same import tariffs to all countries (despite Donald Trump brazenly disregarding it!), but even if they do it will cost them more than it does us and we could use the extra income to refund our EU customers!

Reduce Legal immigration. It only helps growth at the top and entrepreneurial end of the income scale. Someone on an average wage of £35,000 will be taking out more than they are putting in. Large numbers of immigrant basic tax rate wage earners, although working hard and paying their taxes, dilute GDP per capita and undermine growth. If we are to reduce unemployment we must first close our borders so employers, who only see the savings from not having to train British workers, are forced to prefer do so for the benefit of the nation as a whole. It is the taxpayer who otherwise has to pick up the tab making us all poorer. The NHS is one of the worst offenders in this respect. Increasing numbers of well qualified British school leavers and graduates now cannot start out on any serious career because sufficient professional training places are no longer available. We must now scrap the points-based bureaucratic system and replace it with a reducing quota system where a sponsor has to buy a place in a monthly quota (together will all the insurances). As the quota is reduced each month so the price rises and it becomes comparatively cheaper to hire and train a British person. Rather like import tariffs. A free market economy allocates resources through the price mechanism and the labour market should do the same. Illegals to be included in the quota until deported, though possibly legalised by a sponsor.

Cheaper electricity is now urgent both to improve living standards and maintain political stability and also to enable British companies to compete at all. You don’t have to be a climate change denier not to acknowledge the damage it causes. That is not the issue. What is the issue is whether we are reacting to it rationally and safely.

Technological development is already reducing the cost of green energy and it will shortly become cheaper than fossil fuel energy, even though we will still be dependent on fossil fuels to maintain constant supplies. What is not necessary is for government to force the issue by engineering higher electricity prices. By doing so it is weakening our economy, undermining growth and making it more difficult to deal with the challenges climate change presents. It is counter-productive. I have no difficulty in principle with means-tested subsidises for heat pumps and solar power for houses (proving it can also provide air-conditioning!) but those costs must be prioritised against many other urgent uses of our limited funds. That is why scrapping Net Zero is so important.