The UK needs a modern economic policy that is tailored to the opportunities and constraints of the contemporary international economy. In response to the economic shock of the Covid public health crisis and a decade of slow growth and economic stagnation it needs a confident and audacious policy of macro-economic management and supply-side reform. There should be a realistic appraisal of the principal tools of macro-economic management, fiscal and monetary policy and of the roles assigned to them.

The tax system should be reformed and simplified to improve the performance of the supply side of the economy. The objective should be less complexity, a simpler income tax structure, lower marginal tax rates and a more coherent system overall. In the current environment of low interest rates, internationally integrated capital markets and constraints on the effectiveness of monetary policy as a source of stimulus, fiscal policy rather than monetary policy should be used stimulate economic activity. Monetary policy remains important and a potential break that can be used if there is a need to slow the economy down. Tighter monetary conditions and more normal interest rates would improve the micro-economic functioning of money and credit markets. Policy makers must above all be very nimble over the next year, as the economic data being generated in the current climate is less reliable than in normal times. In the future a looser fiscal policy combined with tighter monetary conditions would offer a better overall macro-economic policy mix.