A leading academic and expert in business ethics and Catholic social teaching has criticised a new report that says the UK economy is not working and needs fundamental reform.
Philip Booth, Director of Research and Public Engagement and Professor of Finance, Public Policy and Ethics at St Mary's University, Twickenham, said the Institute for Public Policy Research report, "Prosperity and justice: A plan for the new economy" is flawed because it posits solutions likely to have the opposite effects to those intended.
The report says that many of the causes of the UK’s poor economic performance – particularly its weaknesses in productivity, investment and trade – go back 30 years or more: "They will not be addressed by incremental change or trying to ‘muddle through’. Fundamental reform has happened twice before in the last century following periods of crisis – with the Attlee government’s Keynesian reforms in the 1940s and the Thatcher government’s free market reforms in the 1980s. Ten years after the financial crash, change of this magnitude is needed again."
The IPPR's 10-part plan includes measures to promote "investment-led growth" by raising public investment, holding down house price inflation and "reducing the incentives that currently favour short-term shareholder returns over long-term productive investment". The report also calls for a "new industrialisation" away from an "over-dependence on the finance sector towards a more diverse array of manufacturing and other innovative, export-oriented industries, located right across the country."
It also says workers should be given greater bargaining power, making it easier for trade unions to negotiate on their behalf to achieve higher productivity and to share its rewards fairly through better wages and conditions and reduced working time.
The report calls for wealth to be more widely distributed in society, both by widening ownership of capital and through "fairer forms of wealth and corporate taxation".
Members of the IPPR commission included Frances O'Grady, general secretary of the Trades Union Congress and the Archbishop of Canterbury, the Most Rev Justin Welby.
Archbishop Welby told the BBC: "Our economic model is broken. Britain stands at a watershed moment where we need to make fundamental choices about the sort of economy we need. We are failing those who will grow up into a world where the gap between the richest and poorest parts of the country is significant and destabilising."
The UK Treasury defended the nation's economic performance, stating: "Employment is at a record high, the deficit is down and inequality is at a 30-year low."
Professor Booth told The Tablet: "Many of its proposals are faulty because its analysis is faulty. For example (page 213) it is stated that corporation tax has fallen as a share of GDP because of reductions in tax rates. This is simply untrue. There was a fall after the collapse in bank profits after 2008 and there has been a fall as a result of the fall in North Sea oil. However, onshore corporation tax receipts have risen as the corporation tax rate has fallen. Given that the report expects to see higher tax revenues as tax rates rise from their current already record levels, this flaky analysis is worrying. Indeed, it calls into questions the basis of much of the analysis. No economy has regulated and taxed its way to higher productivity except by reducing employment amongst the least productive groups, especially younger people.
"Proposals in relation to migration focus on letting in high-skilled labour. This is questionable both from an economic and an ethical perspective given that it focuses only on giving opportunities to relatively well-off migrants. Ideas around allowing different regions having different policies in relation to migration would need to be complemented by unethical constraints on internal migration or they will be completely impractical.
"There are simple solutions to the productivity problem which would also raise the incomes of the poorest and reduce wealth inequality – developers must be allowed to build more houses so that housing costs fall. There are also simple solutions to the problem of market power amongst tech companies – reduced government protection of intellectual property. Unfortunately, the predisposition of those involved in the report lead them towards government planning solutions which experience suggests will have the opposite of their intended effects.”
Responding to the critique, Tom Kibasi, Director of IPPR and Chair of the Commission, said: “The report calls for moral purpose to be restored to the economy. The economy exists to serve society, not the other way round.
“The rise in corporation tax receipts reflects the rise in corporate profitability that has occurred as wages have stagnated. Most economists—and senior government officials—recognise that the reduction in the corporation tax rate has failed to increase the number of corporate tax payers.
“The examples of Denmark, Norway, Sweden and Switzerland show how better paid and meaningfully engaged workers can result in a more productive and prosperous economy.
“Our immigration proposals are designed to facilitate economic success while promoting dignity and justice for migrants. Far from focusing on a narrow pool of ‘high-skilled’ labour, our recommendation for a ‘Trusted Sponsor System’ would enable responsible employers to recruit workers with a greater range of skills than at present. Our proposed regional immigration system is based on current visa rules for employer-sponsored migration, and would no more restrict the mobility of migrants once settled here than the current system.
“It’s time to stop trumpeting orthodoxies that have been plainly discredited by the past decade of failed economic policy making, and instead to think more deeply about how to make the economy work better for everyone – as we do in our report.”