Talking Economics

Perspectives caught up with Roger Bootle, Executive Chairman of LDC-backed Capital Economics and one of the UK’s most influential economists, for his views on the shifting landscape, and how Britain can help encourage enterprise and entrepreneurship.

Roger Bootle has a heavy cold, but fortified by a double espresso in D&D London’s newly-opened Aster Hotel in London's Victoria, the founder of Capital Economics - Europe’s largest independent macroeconomic consultancy - soon warms to his twin themes of tax reform and Brexit.

He is at a loss to understand why Chancellor Philip Hammond ever considered raising National Insurance contributions for the self-employed - a decision quickly reversed earlier this year after a backbench revolt by Tory MPs.

“Rather than increasing tax on the self-employed and on anyone receiving dividends, it would have been far better if the Chancellor had cut tax for everyone else,” he observes.

What’s needed is a complete re-think of the tax system: “The long term objective should be to abolish corporation tax. We know we’re heading for a rate 17 per cent and that’s been extremely good as it encourages business confidence and investment but will the government have the political will to go further? I reserve judgement.” 

Bootle takes particular aim at stamp duty, which is ‘killing’ part of the property market, and the top rate of tax.

“The 45p rate is absolutely crazy, it really does penalise people with talent, it inhibits the building up of capital from income, it’s deeply inequitable and I’m appalled the government hasn’t found the political courage to do something about it. I really hope that’s what they’ll do if they get re-elected with a thumping majority.”

In the meantime, he thinks the single most important thing the government can do for entrepreneurs is to try to make it easier for the self-employed to hire their first employee.

“This is the critical step in expansion - once you’ve done that it’s then just a matter of scaling it.

Why can’t we have a single government agency making this simple, bringing everything together - VAT, National Insurance, employment rights? An agency that actually has as its purpose encouraging people to move from just employing themselves to employing their first person.”

As for the broader economic outlook, with Article 50 now triggered and the formal process of Britain leaving the European Union underway, Bootle remains a self-confessed Brexit optimist.

“There will be some bumps in the road and I’d be surprised if consumer spending doesn’t weaken a bit in reaction to the squeeze on real incomes that’s coming, but the big fall in the pound we’ve seen is a tremendous shot in the arm for many UK businesses.

“All sorts of businesses that compete with foreign rivals will benefit, for example our tourism and hotel industries. Once they understand that everything isn’t going to hell in a handcart then their confidence will justify higher investment. We’ve yet to see this substantial boost from the lower pound but it’ll come through over the next year or two.”

During which time Britain will, of course, be negotiating its exit from the EU. Bootle is clear about his preferred outcome.

“I very much hope we unilaterally embrace the free trade option and we don’t seek to impose tariffs on imports from either the EU or the rest of the world.”

He readily accepts that the recent rise of protectionism around the world makes this more difficult for everyone but happily quotes the late Keynesian economist Joan Robinson, who once said: ‘Just because your neighbours are putting rocks in their harbours doesn’t mean you should be doing the same.’

Bootle, a long-standing Eurosceptic, agrees. “The most important thing is to do the right thing for us. I’m quite optimistic we can reach a number of useful free trade agreements with like-minded countries, including the US, Canada, Mexico, the Commonwealth, Norway and Switzerland. Then we’ll have to see how the EU behaves, if the EU survives.”

But more free trade is just the start of it. Bootle also believes Brexit is a catalyst for something even more fundamental, a once-in-a-lifetime opportunity to enact radical economic reform.

“What people and institutions often need to take decisions that are in their own interests is, to use a technical term, a real kick up the backside, which Brexit provides.

“There’ll be plenty of people saying over the next few years that things are really bad, there will be news about companies withdrawing from the UK or cancelling investment. So I think it’s really important for the sake of confidence that there are various other things going on at the same time that give the exact opposite impression.

“It would be good when we leave the EU if we also announce simultaneously a whole raft of other measures which make it clear to existing businesses here and those that haven’t yet set up that this country really is in favour of business.

“I’ve mentioned some of these things already: cutting the top rate of tax, encouraging entrepreneurs and taking a tough stance on various regulations which are stifling innovation and competition.

“And we can do all this even without a Brexit agreement.

“Call it ‘Singapore on steroids’.”