The Eric Morecambe government

All the right things in the wrong order.

One of the great comedy lines of all time is Eric Morecambe’s retort to Andre Previn’s complaint about his inability to play Greig’s piano concerto. Grabbing Previn by the lapels he says, “I am playing all the right notes, just not necessarily in the right order”.

This might well be the motto for the government’s efforts to get the economy growing. They are doing some of the right things, just not necessarily in the right places and not really in the right quantities and crucially not with the right focus. Take the variety of state-sponsored lending schemes launched in the last year. When Project Merlin failed to magic up the boost in small business lending that it was expected to, the government launched (or relaunched) the Small Firm Loan Guarantee Scheme (SFLGS), which according to the department for business, was apparently successful, although it failed to get the economy really moving. Three months after it was launched the SFLGS was effectively replaced by the credit-easing scheme billed as Funding for Lending, which would allow banks to borrow at a cheaper rate.

Fast forward another two months and business secretary Vince Cable was out and about this week promoting an industrial strategy that included a suggestion all this may soon be collected together under the umbrella of some form of British business bank.

The details — whether it would include new cash (unlikely), who would be picking the schemes, sectors and firms to invest in and so on — weren’t included. It was a policy announcement coalition style, in effect little more than a floating of an idea to judge its credibility. A business bank in itself sounds like a sensible idea, although simply rebranding lending schemes or creating a fancy new website to house them all in won’t make businesses any hungrier for lending.  

Until that demand for borrowing returns (and to some extent that appetite will require the banks to drop some of the more onerous conditions and rates they are placing on lending at the moment), supply side measures will continue to have little impact.

Some commentators immediately seized on the problematic issue of governments picking winners and images of 1970s British Leyland plants were rolled out again to illustrate why this is such a bad thing. The real problem of course is not picking winners, but rather investing in losers. However, picking sectors seems to be more acceptable. Here, too, there are signs the government is playing the wrong tune. While freeing up planning regulations might help the housing sector, allowing a few homeowners to get the eight-foot conservatory they always dreamed of won’t pull us out of recession.

It is welcome to see a broader acceptance of the fact that there is a role for what shadow business secretary Chuka Umuna calls active government. But this activity will naturally involve selecting sectors to back. One sector that too often gets overlooked as a driver for growth is professional services. What role can the professions play in getting what has become known in some parts of Westminster as “this growth thing” moving?

To address just this question, the Professional and Business Services Group (PBSG) has produced an excellent report Seizing Opportunities for Growth, summarising the work of the sector and suggesting what needs to happen to keep things growing in the right way. The sector remains a major contributor to the UK economy, accounting for roughly 13 per cent of all economic activity, employing 3.5 million people and producing £167bn of GDP in 2010. Crucially it is an international business and accounts for 14 per cent of UK exports and returned a surplus on the UK’s current account of £28.5bn in 2010.

But the report makes it clear that despite the success of the sector there is more than can and must be done to protect and enhance this sector. Chief among these is the expansion of digital infrastructure to create what it calls “smart cities” and the opening up of government data for commercial exploitation and innovation.

The crucial point is that if we get the underlying structures, skills and systems right, then there would be less need to worry about government picking sectors or spotting winners, because everyone would be able to benefit from a more productive environment.

This article first appeared in economia.

Morcambe and Wise. Photograph: Getty Images

Richard Cree is the Editor of Economia.

Photo: Getty Images
Show Hide image

How can Britain become a nation of homeowners?

David Cameron must unlock the spirit of his postwar predecessors to get the housing market back on track. 

In the 1955 election, Anthony Eden described turning Britain into a “property-owning democracy” as his – and by extension, the Conservative Party’s – overarching mission.

60 years later, what’s changed? Then, as now, an Old Etonian sits in Downing Street. Then, as now, Labour are badly riven between left and right, with their last stay in government widely believed – by their activists at least – to have been a disappointment. Then as now, few commentators seriously believe the Tories will be out of power any time soon.

But as for a property-owning democracy? That’s going less well.

When Eden won in 1955, around a third of people owned their own homes. By the time the Conservative government gave way to Harold Wilson in 1964, 42 per cent of households were owner-occupiers.

That kicked off a long period – from the mid-50s right until the fall of the Berlin Wall – in which home ownership increased, before staying roughly flat at 70 per cent of the population from 1991 to 2001.

But over the course of the next decade, for the first time in over a hundred years, the proportion of owner-occupiers went to into reverse. Just 64 percent of households were owner-occupier in 2011. No-one seriously believes that number will have gone anywhere other than down by the time of the next census in 2021. Most troublingly, in London – which, for the most part, gives us a fairly accurate idea of what the demographics of Britain as a whole will be in 30 years’ time – more than half of households are now renters.

What’s gone wrong?

In short, property prices have shot out of reach of increasing numbers of people. The British housing market increasingly gets a failing grade at “Social Contract 101”: could someone, without a backstop of parental or family capital, entering the workforce today, working full-time, seriously hope to retire in 50 years in their own home with their mortgage paid off?

It’s useful to compare and contrast the policy levers of those two Old Etonians, Eden and Cameron. Cameron, so far, has favoured demand-side solutions: Help to Buy and the new Help to Buy ISA.

To take the second, newer of those two policy innovations first: the Help to Buy ISA. Does it work?

Well, if you are a pre-existing saver – you can’t use the Help to Buy ISA for another tax year. And you have to stop putting money into any existing ISAs. So anyone putting a little aside at the moment – not going to feel the benefit of a Help to Buy ISA.

And anyone solely reliant on a Help to Buy ISA – the most you can benefit from, if you are single, it is an extra three grand from the government. This is not going to shift any houses any time soon.

What it is is a bung for the only working-age demographic to have done well out of the Coalition: dual-earner couples with no children earning above average income.

What about Help to Buy itself? At the margins, Help to Buy is helping some people achieve completions – while driving up the big disincentive to home ownership in the shape of prices – and creating sub-prime style risks for the taxpayer in future.

Eden, in contrast, preferred supply-side policies: his government, like every peacetime government from Baldwin until Thatcher’s it was a housebuilding government.

Why are house prices so high? Because there aren’t enough of them. The sector is over-regulated, underprovided, there isn’t enough housing either for social lets or for buyers. And until today’s Conservatives rediscover the spirit of Eden, that is unlikely to change.

I was at a Conservative party fringe (I was on the far left, both in terms of seating and politics).This is what I said, minus the ums, the ahs, and the moment my screensaver kicked in.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.