You need a serious government to tackle serious problems and there has been no evidence in the last few years that the Conservatives take anything seriously. Least of all the economy – even less an economy that works for all.
All eyes may be on the budget but of equal importance is the Office for Budget Responsibility’s (OBR) updated economic and fiscal forecasts for the next five years published straight after the chancellor, Jeremy Hunt, sat down after his delivery at the despatch box.
The OBR marks the government’s homework and sets out the projections for the next few years – in this case beyond the next general election – and therefore is significant. It may be March, but this is unlikely to put a spring in the government’s steps.
The OBR’s forecast in November said that in 2023 household incomes are not expected to keep pace with inflation, resulting in the largest falls in household income on record. The current prognosis is also far less than hopeful. On current trends, over the next two years, households are likely to suffer the most dramatic drop in disposable income since records began and living standards will still be below pre-pandemic levels by at least 2028.
A poor society with some very rich people
The chancellor has other more pressing and immediate concerns to address, not least of all ending the public sector strikes through a negotiated settlement, childcare and energy costs that are crippling so many families.
There are, though, some massive fault lines in the British economy that are fundamental and require far more than the ‘sticking plaster’ approach that the Conservatives are so fond of applying. Issues that are not addressed by budgets but by a massive programme of work and a fundamental mind shift in approach to managing the economy.
Probably the biggest of these is the continuing economic divide in the country – one of the most unequal industrial economies and described by the Financial Times as a “poor society with some very rich people”.
Recently the Labour Party, using World Bank data, suggested that on current trajectories that by 2030 the UK will be some $600 behind that of Poland in terms of per capita GDP. This data shows just how far the UK is falling behind other countries.
In the past many relied on the City of London being part of our get-out-jail of card. We could sustain underperformance in some ‘lagging’ regions because the economy of London and the South East would prop up the UK. But a reversal in the fortunes of London, not helped by the double whammy of the financial crash and leaving the EU, has meant that the economy of the UK is much more fragile.
Labour’s alternative approach
Keir Starmer recently launched Labour’s national missions focusing, unsurprisingly, on the economy. Not least of all because it’s one big mess but also because he needs to demonstrate to the financial markets and financial backers that he knows what he’s talking about.
In a speech delivered at UK Finance Starmer said:
“The British people are falling behind while our European neighbours get richer in the East, as well as in countries like France and Germany… I don’t want a Britain where young people, in our great towns and cities, are left with no option but to get out. A brain drain – not just to London or Edinburgh, but to Lyon, Munich and Warsaw.”
Starmer invited the British people to “judge us on whether they feel better off after five years of a Labour government”. Maybe that’s not a tall order given the last decade but it’s still quite an ask. But he went further, promising the highest sustained growth in the G7, in every part of the UK.
He is of course absolutely right to have this ambition, but the question remains – having fallen so far behind after almost 13 years of Conservative neglect, how on earth can this be turned around in five years? And we really are far behind – according to the Institute for Government the UK’s output per worker is below all other G7 countries except for Japan, and output per hour worked in the UK is lower than in France, Germany and the US.
Addressing inequality of the regions
New research suggests we may have been looking in the wrong places or using the wrong levers to address regional imbalances.
A report co-authored by Ed Balls, Dan Turner (a researcher at Harvard Kennedy School and advisor to South Yorkshire mayor Oliver Coppard), and Anna Stansbury (assistant professor at Massachusetts Institute of Technology) was published last week. It starts from the premise that the gaps between UK regions are so severe that the problem is unlikely to fix itself. It also challenges some long-held assumptions about why there are lagging regions in the UK – lack of university graduates, lack of access to finance, the push and pull of wages and migration.
The aftershocks of deindustrialisiation have been comparatively deep in the UK. As the report details: “the only other EU regions which have ever seen a ten-year period of deindustrialisation as fast as the experience of the Midlands or Yorkshire in the 1980s were regions in formerly communist countries in the decade directly after the transition to capitalism.”
The result? The disparity in wealth between London and the South East versus the rest of the UK is extremely large in an international context, fuelled as well by London’s international rise as a global financial market. But it’s also noticeable that the underperformance of regions outside London and the South East is largely driven by underperforming cities.
What is to be done?
The authors suggest four things that will make a difference.
The first is boosting STEM degree-level skills (science, technology, engineering and mathematics). The second is “improving transport provision (both capital spending and public transport) in major conurbations outside London”. Thirdly, “more public investment in research and development (R&D) and innovation in clusters beyond the South East; and finally alleviating housing supply and affordability constraints in greater London”.
Is this the ‘golden bullet’, or indeed hail of ‘golden bullets’, needed to turn the country’s fortunes around? This is the level of analysis that has not seen the light of day from anyone in the treasury since the Conservatives came to power and is worth taking seriously.
We are being sold short by successive Conservative governments who fail to acknowledge the scale and depth of the country’s economic problems. More importantly it is a dereliction of duty by Conservative chancellors not to take any of this seriously.
The Spring budget may ameliorate some difficulties with the promise of 12 new investment zones, but this is a tax incentive growth initiative that smacks more of a short-term wheeze.
Time for serious government
The UK needs a serious government to tackle serious problems and there has been no evidence in the last few years that the Conservatives take anything seriously.
This from Lee Anderson the deputy chair of the Conservative Party:
“The big thing in 2019 there were three things that won us the election… it was Brexit, it was Boris, it was Corbyn. At the next election we haven’t got those three things we’ll have to think of something else, it’ll probably be a mixture of culture wars and the trans debate.”
That is the territory the next election will be fought on. That and boats. The big stuff, the stuff that is life changing and life enhancing – that actually makes a difference to people’s lives – will barely get a look in.
Starmer has described the budget as a “sticking plaster” for a country needing “major surgery”. It’s time for the Conservatives to vacate the room and let the grown-ups take over – they have little idea how to govern and even less interest in the things that make a difference to ordinary people’s lives.
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