Nadhim Zahawi: I urge the Chancellor to be brave, or be bold, or both – if not, both you and Britain will be sunk | Conservative Home

Nadhim Zahawi is Patron of the Adam Smith Institute, a former Secretary of State for Education, Party Chairman and Chancellor of the Exchequer.

There’s a chill in Westminster. It’s not the weather, which thanks to the lack of wind and plenty of clouds, is set to cause more havoc to Ed Miliband’s eco-socialist energy system. It’s the Chancellor’s budget, which is set to put a deep freeze on British growth. She will try to blame everyone else, Vladimir Putin, the last lot who were thrown out almost 18 months ago, and Donald Trump. Taking some responsibility for Britain’s malaise would be welcome, but much like growth-unleashing supply side reforms and tax cuts, you should not expect any.

The truth is that the blame lies with her. When I talk to business leaders today, they relay their anxieties about a ‘hokey-cokey’ budget, higher taxes on business, and the apocalyptic Employers Rights Bill on the horizon.

I have some suggestions for Mrs Reeves, and the government of which she is a part, if they want to actually achieve the ‘economic growth’ to which they have so far merely paid lip service. Because this Budget really is the last chance for the government to convert their rhetoric about growth into real business activity.

Failure here will mean even more borrowing, even less investment, and the end of her political career.

In order to avoid this fate, she must first adopt the words of entrepreneurs and embed them into policy. She must be brave and speak about “risk”, “innovation”, and “markets”, rather than regulating these crucial concepts out of existence. (Going further, in my opinion she must cut back the regulators themselves, including the FCA and PRU, and allow Britain’s world-leading services sector to grow and flourish.)

The biggest challenge she has is to convince her own Party that Labour should act to bring wealth creators to the UK – reversing the flight of investors, directors, and founders that has plagued us over the last two years. Speak to any private office, lawyer, accountant, philanthropist, or private client banker, and they will tell you how many one-way tickets out of the UK are being issued to less exciting economies like Italy, Switzerland, Portugal, or France.

We can reverse this very simply with an Italian style flat-tax regime for foreign business people and investors. It has been so successful in Italy that they doubled the fee to €200,000 and even more people came! This would replace the non-dom system and go a long way to repairing the damage caused by our exodus. Remember, for every wealthy person who leaves, the burden on the rest of us grows heavier.

Speaking of the burden on those who can’t leave the soil of Britain, Reeves has also punished our brave farmers. These hard workers who take such pride in growing the food on our plates, have been subject to a punishing betrayal with the Family Farm Tax being levied on their estates.

Thanks to Jeremy Clarkson and tireless campaigning, the damage higher taxes can do is increasingly well understood in a rural setting. But it’s not just farmers that should have this tax lifted, but families across the country – as I’ve argued time and again, inheritance tax is a morally repugnant, distortive, and economically damaging tax that needs complete abolition.

Not only do we have the highest estate tax in the world, but with frozen thresholds, more families than ever before are struck with this levy every day. Often, this tax means family businesses, whether farms, shops, or factories, are liquidated or sold to pay off the taxman – if the Chancellor wants to win back the public, she should start here.

Britain is a nation of shopkeepers – our direct business taxes alone are worth almost £100bn this year. That’s enough to pay for every school, university, and nursery covered by my old Department, the DfE. But the nation’s private sector, from tiny businesses to world-leading giants, is about to be struck with the (Un)Employment Rights Bill. I fail to find the words to describe the damage this Bill will do.

It will destroy our already struggling labour market, subject businesses to trespassing by union officials, and bind small businesses to tribunals for restructuring. The Institute of Directors and others have issued stark warnings from its business members about this Bill. The only conceivable reason for going ahead with it would be if Reeves wanted to destroy value and force the closure of British businesses.

There’s one more tip that I would give Rachel Reeves for the big day on Wednesday.

And unlike some of my other suggestions, it might just be more palatable to Reeves’ big-state instincts. It concerns infrastructure. Recent polling by the Adam Smith Institute, of which I am proud to be a Patron, shows that the vast majority of Brits thinks the government spends their taxes poorly – but other than HS2, they demand we should be spending more on infrastructure. That means hospitals, roads, runways, and ports.

If the Chancellor wants to deliver firm growth over the long run, she could increase the capacity of the government’s Infrastructure Bank, also known as the National Wealth Fund, by, say, 20 times. This would give markets and creditors the confidence and dexterity to make strong investments, alongside the state, in the tools that businesses utilise to grow the economy.

Failing to do so would send a clear signal to markets: “the UK is closed to growth in big infrastructure, perhaps you should try the French or Italians”. Cheap, forward-looking policies like this may not be big ticket items but could be packaged as local investment to help her ailing backbenchers show some good of a Labour government.

Bond traders, businesses, and the public are wary about this Budget, and it is do-or-die for this historically unpopular government. If the Chancellor wants to turn the ship around, she should listen to me, the pro-growth thinkers around Westminster and in our private sector and tune out the tax-and-spend socialists crowing at her from the backbenchers.

I urge the Chancellor to be brave, or be bold, or both – if not both you and Britain will be sunk.