To achieve an effective industrial strategy, we need to talk about tax

The publication of the Government’s Industrial Strategy last week was welcomed by the TUC. We’ve long been arguing that a more strategic approach to the economy is necessary to addressing the challenges we face if we want to see decent jobs and living standards for everyone.

If we’re thinking about how to address the longest pay squeeze since Victorian times, stark regional disparities that mean London produces twice as much income per capita as the rest of the country, the rise and rise of insecure work, or the question of how we’ll make our way in the world outside the EU, having a sense of direction and a clear sense of the tools at government’s disposal to help build a better economy can only be a positive step.

If we’re truly taking a strategic approach, we need to make sure we’ve considered exactly what those tools might be. Most people who’ve read something about industrial strategy can rattle off a list of them; whether that’s using the power of government investment to support science or upgrade our infrastructure, changing how government itself does business through reforms to education or procurement (and sometimes devolution), or exhorting business to do more to upgrade the quality of work and production in their own supply chains.

But there’s surprisingly little discussion of one of the most basic tools of government: tax. Of course, there’s no shortage of debate about the level of business taxation that best balances the need to support the social and physical infrastructure that businesses rely on, with the right incentives for businesses to invest. It’s probably no surprise that the TUC believes that cuts in corporation tax are not the right approach to building the kind of economy or society we want.

Where there seems to be scope for new thinking is in how tax is structured, and in particular how the current system of reliefs and allowances fits with the aims of the new Industrial Strategy to deliver better living standards for all.

We know, for example, that over a third of expenditure on Research and Development and Patent Box tax reliefs takes place in London. This may be because more companies are headquartered there – but again that might be telling us about some of the things we need to think about when addressing regional imbalances.

It is arguable that our system of tax reliefs is already a form of industrial strategy – just not one normally badged as such. As a recent piece in the FT argued, the UK government currently puts considerable amounts of support into Start Ups, concluding that “one reason why investors keep throwing money at crowdfunded startups with no chance in hell of succeeding is that very little of their money is actually at risk.”

We think the question of how taxation could best support the aims of industrial strategy is worth asking. So we’re delighted to work with the Responsible Tax Lab to explore what kind of tax system could best support a post-Brexit economy that delivers better living standards across the country. If an industrial strategy is going to be effective, then we will need to talk about tax.

Kate Bell

Kate Bell

Kate Bell is the Head of the Economics and Social Affairs Department at the TUC. The Department leads the TUC's work in many key areas of economic and social policy, seeking to influence public and political debate through a comprehensive programme of research, analysis and events.
Kate Bell

@kategobell

Head of Economic and Social Affairs, @The_TUC. Re-tweets not endorsements etc.
RT @touchstoneblog: Rising employment shouldn’t distract from the living standards crisis https://t.co/kU1rEkPQeG https://t.co/JsEaESgikW - 24 hours ago
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