Rishi Sunak is down but not out – if only that could be said for Britain

This may all prove overly depressing, but it’s still pretty hard to see at this point why things should be going much better. Growth heals everything – at least everything economic – but it is particularly scarce.

First the pandemic and then the war in Ukraine apparently made the situation infinitely worse. But slow growth and low productivity have long been persistent problems for the UK, and there are few signs of improvement.

It would take an entire textbook to examine the many underlying causes of Britain’s poor productivity record, but an overly short-term management approach would top the list. Ministers often accuse business leaders of not being able to see beyond the next quarterly earnings update and consequently cutting back on long-term investments.

There is much truth in their limitations, but first they should look at the speck in their own eyes. UK politics is heavily influenced by the election cycle. The famous Juncker curse says that politicians know what to do; they just don’t know how to get re-elected afterwards. Instead, they engage in populist short-term solutions and sweep long-term problems under the rug.

Of course, Sunak needs to address the cost-of-living crisis more broadly in his next budget by giving more support to the poorest, but otherwise he should stick to his guns. If Britain is to have any future at all, it is vital that excessive public debt is tackled head-on. Since the Chancellor’s neighbor is a saver and not a saver, the only way to do this is through a higher tax burden.

It is equally important that UK companies are given incentives to improve their woefully underinvestment in physical and human capital. If there’s room for tax cuts, that’s what they should focus on. Raising the overall corporate tax rate from 19 to 25 percent is unwise and, as the IMF points out, is likely to be an obstacle to growth in itself.

But it doesn’t have to be, when offset by sweeping tax breaks for much-needed capital spending. The so-called “super deductions” that are about to end must be replaced by something more permanent and equally generous.

The Treasury is shying away from the cost. As a temporary incentive, super deductions only encourage future investments and therefore have no long-term impact on public finances. But if made permanent, they would result in an ongoing 3p tax cut from income tax. Such a move would garner few positive headlines, but the long-term benefits could be out of the ordinary.

Sunak has been accused of being unmusical and politically naïve. But if it takes political naivety to do the right thing, let’s have more of it.