Yogi Berra, the respected baseball player and coach, would have called it deja vu all over again. A Tory chancellor telling the country it has “turned a corner” while tossing around a few tax cuts as a general election loomed wasn’t the only reason why Jeremy Hunt’s tricks felt so familiar. The feeling of having been here before was heightened by another aspect of his financial statement: a budget that was anything but in name. The Chancellor also came up with a ‘growth plan’.
He spoke as if getting more out of the economy was a new idea that had never occurred to anyone before, but that his plan is the twelfth growth plan the Tories have promoted since 2010, making it a plan for almost every year that they have been in power. If the Tories had been as prolific in generating growth as they are in producing plans, we wouldn’t need another one, because the world would blaze a trail to our door to discover how the genius of the United Kingdom became a country that overflowing with milk. and honey.
Osbornite austerity, sporadic May Day interventionism, Johnsonian Brexit boosterism, Liz Truss’s self-destructive experiment, each of these was presented as the road to nirvana. Yet Britain is still struggling through the dark valley of grim growth and high taxes, while living standards have taken a terrible hit. The Resolution Foundation calculates that the average household will be £1,900 poorer at the end of this parliament than at the time of the last election. Do you feel better off for the Tory government? That is the question that Labor wants to put at the heart of the election campaign. For most people, the answer will be a resounding no. The Office for Budget Responsibility has cut its growth expectations for the next two years to anemic levels, more optimistic than the Bank of England, which thinks the economy will flatline in 2024. Stability is the purported guiding principle of the Chancellor and the Chief Minister. That sounds better than admitting that they are heading into an election year of stagnation.
It is true that many of the advanced economies have struggled to significantly improve their productivity since the financial crisis more than a decade ago. As additional mitigation, the administration can argue that the challenge has been exacerbated by Russia’s invasion of Ukraine and the pandemic. Yet Britain has performed worse than most of its peers on critical measures. Boosting prosperity on a sustainable basis requires long-term investments in skills, infrastructure, equipment, technology, innovation and other growth drivers. Business investment has been the lowest or second lowest in the G7 throughout the Tory years. Public investment, the money spent by national, regional and decentralized governments, is well below the average of both the G7 and the OECD.
Poor decision making explains some of this. This also applies to the disgusting way in which our politics is conducted. Investors, both national and international, prefer a predictable environment to a chaotic one. This has been an era of Tory instability. Five Prime Ministers since 2010, seven Chancellors and nine Business Secretaries. They have been too busy treating politics like a grotesque form of soap opera to properly manage and develop the economy. As for other departments relevant to education, skills, investment, infrastructure and technology, there are seven transport secretaries, nine work and pensions secretaries, no fewer than ten education secretaries and an astonishing thirteen secretaries of state with responsibility for digital and media. Whitehall’s revolving doors have been blown off their hinges. Policymaking has gone one way and then the other. Industrial and economic strategies are here today and will be gone tomorrow.
A decent level of growth allows the government to provide satisfactory public services without imposing heavy levels of taxation. Poor growth means that the government ultimately collects more taxes while providing fewer services. That is the deeply unattractive combination we live with today and one of the main reasons why the Conservatives are so unpopular. Even with the two point cut in National Insurance announced by Mr Hunt, the amount of tax as a percentage of national income is still going relentlessly higher. The Institute for Fiscal Studies expects this to be even higher than in the years immediately after the Second World War. And what do taxpayers get in return for the record amounts they send to the treasury? An NHS in permanent crisis, unsafe schools, overcrowded prisons and other public services in a state of disrepair. Britain will remain in this grim trap unless we can deliver stronger growth.
There is broad agreement that Mr Hunt has announced a number of useful reforms to encourage investment and accelerate economically beneficial projects. A little late at the end of thirteen years of Tory rule, but we have to give him credit for making the effort to think long-term, while many of his colleagues were much more obsessed with short-term issues such as the timing of elections . I would expect a Labor government to continue and try to build on many of its measures. In contrast, the Chancellor put a brake on growth by announcing a freeze on public investments. The OBR expects its announcements, assuming they are implemented, to increase output by 0.3% within five years. That hardly justifies the Chancellor’s claim that there is ‘turbocharged’ growth. It’s a toes forward. The bleak growth outlook, combined with the high level of public debt, leads most expert analyzes to conclude that the next government will face a budget crisis that will leave it with no choice but to raise more taxes after the elections or create another lay. a round of severe cuts to public services. That worries not so much the Tories, who do not expect to be the next government, but the people who expect to come to power. ‘Growth, growth, growth’ has become a favorite mantra of Sir Keir Starmer. He and Rachel Reeves, the shadow chancellor, project it as their defining mission and themselves as the people to be voted on if you want a growing economy. They’re betting all their political chips on it. This is not only to highlight the Tory’s failure, but also to give voters, their party and themselves, and perhaps especially themselves, some help so that the future does not turn out to be as bleak as predicted.
Many on the left have traditionally been more animated by questions about how to distribute national wealth and less interested in how wealth can best be generated. Labour’s emphasis on growth is smart and welcome, but there are many question marks hanging over whether Sir Keir and Mrs Reeves can pass the tests the Conservatives have failed. The centerpiece of Labour’s growth strategy is its green prosperity plan. The plan, devised in deliberate echo of Joe Biden’s Green New Deal, originally promised to deliver £28 billion a year in public investment in renewable energy, battery factories, home insulation, carbon capture and other areas of the green transition from the first year of a Labor government. . The idea is that this will pump billions more out of the private sector.
Pushing that plan back to the second half of the next parliament has left a hole in Labour’s strategy, but has not stopped the Tories from calling the plan “reckless” and “inflationary” anyway. Labor is now placing a heavy emphasis on generating growth through planning reforms designed to accelerate housing construction and the construction of critical infrastructure. That and the transformation of the government into a ‘flexible state’ that works together with trade unions and the business community. I get a bit of deja vu from that too.
A Labor government will have a country with miserable productivity, disempowered public services, huge debts, high tax levels and acute inequality. Labor is likely to get a grace period from voters at the start of its term, with the understanding that the Tories’ legacy has been terrible. Then the pressure will increase on Sir Keir and Mrs Reeves to find the money needed to renew Britain without raising taxes even further. The ultimate success of a Labor government will largely be determined by whether it can achieve a stronger economy. You could even call it Sir Keir’s holy grail. His government will fail if the quest for growth eludes him as miserably as it did the Tories.