Andy Burnham has been bluntly warned by one of his key economic advisers that he must focus on London to boost economic growth.
Lord O’Neill of Gatley said the new Prime Minister would have to rethink his flagship pledge to deliver “growth in every postcode” given limited resources.
The peer argued for a focus on parts of Britain that could ramp up economic growth such as the capital, the West Midlands and the Northern Powerhouse region of Manchester, Liverpool, Sheffield and Leeds.
Focus on London and the Northern Powerhouse
“You’ve got to focus on London,” he said in an interview in The Times. “London is still as big as the next eight most important urban places put together,” he said.
“So if London were to continue showing trend-softening you can’t get the GDP numbers to rise.”
Lord O’Neill served as a Labour Treasury minister and has been an adviser to Mr Burnham since he was heading to No10 but has declined a role in his Government as the Prime Minister’s economic adviser.
He believes the Northern Powerhouse could be a “national game-changer”.
He admitted: “No doubt Cornwall and a lot of other places will moan. That’s going to be tricky for them politically, not least because Andy said we want to have growth in every postcode. He’s got to think about the reality and hard choices.”
Concerns over Civil Service moves and tax rises
His call to focus on growth in London comes amid concerns thousands, if not tens of thousands, of Civil Service jobs are set to be moved from Whitehall to the regions after the PM pledged the biggest “devolution of power in modern times”. There are also fears a number of tax policies could hurt London.
Mr Burnham this week refused to rule out tax rises.
Lord O’Neill warned against raising capital gains tax, saying it would be a “stupid” thing to do. He said raising taxes in the Budget on October 28 would demonstrate ministers are not “thinking about growth as sincerely as they claim they are”.
He added: “They’re just being scared and lazy and constrained in dealing with the sacred cows.”
Warning on capital gains tax
Lord O’Neill asserted that raising capital gains tax would end up costing the Treasury more because business owners would defer selling their companies or move their money abroad to avoid the tax.
He said: “I do think it would be stupid.
“At a time where a lot business still struggles from Brexit and struggles from the changes in national insurance and the labour market changes to zero hours – to have that and inheritance tax, it’s just like it would be yet more, and obviously at a time where the country’s growth rate as been so weak.”
He added: “I think there is some evidence that if you push it up too much you end up losing money.
“Because it’s such a deterrent to ongoing activities of business owners that they just don’t sell anything. So the revenues go down.
“I am myself somebody that’s now had close to 20 years’ experience as a venture capital investor and it’s hugely risky.
“The thing that Andy’s done so well is create this spirit of, ‘I’m going to be a happier kind of positive person’. It’s against that.”
Lord O’Neill said Mr Burnham had done a “great job so far” as Prime Minister in creating a more positive atmosphere and setting out his vision for the country, but that there are “hard choices” to make when Parliament returns from the summer recess next week.
Lord O’Neill said he declined to join the government as either a minister or an adviser because as a crossbench peer he was unwilling to take the Labour whip.
He also did not want to put his business interests into a blind trust, meaning that they would have to be managed by someone else to avoid conflicts of interest in an official role.
