It's time for Osborne to use the I word - 'Intervention'

We need the state to invest in business innovation and infrastructure that commercial investors fear

It's not looking good for Osborne. Output, employment, sectoral data and confidence all point to an economy either on the brink of recession or stuck deep in the doldrums. Inevitably, the debate about how to escape this very nasty patch intensifies and the battle lines dividing fiscal hawks from doves become ever more stark. But it is a debate that masks an even nastier truth for the UK economy. Even when we are through this crisis, we will still be an economy unfit to fight the big global economic battles ahead.

As a new paper published this week by IPPR and written by myself and David Nash shows, the UK is a serial under-performer compared to our competitors on those OECD, IMF and other international economic indicators which are most vital for successful competition in the global market.

On investment in business, on skills, on innovation and productivity, and on presence in emerging markets we are decidedly mediocre and, in some cases, worse than mediocre when compared to similar economies.

This should be troubling at any time but at a point when new, confident players from the East are striding into global markets and as business practices and markets are being turned upside-down by web technologies, fear and trepidation should be stalking Whitehall and the business world.

But because of the intense focus on the short-term crisis there is a real risk that once the economy is growing healthily again, a 'job done' mentality will seize policy-makers. It would hardly be a surprise. There is a long history of complacent back-slapping in British economic policy-making: Macmillan's "never had it so good" as inefficiency ate away at the economy, Nigel Lawson's self-satisfaction at rapid growth in the late 1980s just before the property market crashed under its own weight, and Gordon Brown praising the City to the skies in his 2007 Mansion House Speech while the credit crunch (and worse) rumbled in the distance.

A continuation of this ignoble tradition could prove equally disastrous now.

We can avoid the potential crisis of the future not just by acknowledging the threat but also by moving beyond ideological shibboleths about the state as the enemy of enterprise that has gripped government for too long. Instead we need a new pragmatism that learns from those economies that have long out-performed us on business investment, skills, innovation and exports. These are countries have a hugely healthy respect for the free market and intense competition as the main drivers of growth and innovation but also recognise that the market simply is not very good at delivering some of the fundamentals.

Germany, Japan, the Scandinavian economies and, yes, even the USA use the state to invest in business innovation and infrastructure that commercial investors fear. At their best, they take an active role in predicting skills needs and so can shape their education and training systems to get ahead of the curve. They positively target innovative firms not just with tax breaks but with world class generously funded research. And when firms want to export they get generous credit guarantees plus a whole range of other supports. In short, they intervene. Not out of some ideological love of the state but because it works. Of course, these economies have their own problems and they are far from perfect but on the measures mentioned above, they consistently do better than us.

Intervention has, of course, had a very bad name in the UK. This is partly because the Thatcherite world view became so successfully embedded into Whitehall and into Party political debate (even though Thatcher herself could be quite the intervener when she wanted). But it is also because intervention became confused in the public mind with the economic planning of the 1940s and 1950s when the focus was actually on controlling employment and prices, not on the modernisation of business, as it was in the rest of Europe. The only time when intervention was seriously tried in the 1960s, it was all too late and ill-conceived to save out-dated British business and it degenerated in the 1970s into support for lame duck firms and fading industries.

The intervention we need today should have a very different focus. It is not about predicting the economy of the future and plotting a path there. It needn't even be about identifying high growth sectors and giving them special support. It should focus instead on the very significant long-term weaknesses of the UK economy relative to our competitors by building a bold policy framework to address those weaknesses before it is too late and we find ourselves once again in decline mode. In short, it is the opposite of our tradition of complacency replaced by an embracing of the pragmatism and common sense displayed overseas.

Adam Lent is Associate Fellow at IPPR.

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The 11 things we know after the Brexit plan debate

Labour may just have fallen into a trap. 

On Wednesday, both Labour and Tory MPs filed out of the Commons together to back a motion calling on the Prime Minister to commit to publish the government’s Brexit plan before Article 50 is triggered in March 2017. 

The motion was proposed by Labour, but the government agreed to back it after inserting its own amendment calling on MPs to “respect the wishes of the United Kingdom” and adhere to the original timetable. 

With questions on everything from the customs union to the Northern Irish border, it is clear that the Brexit minister David Davis will have a busy Christmas. Meanwhile, his declared intention to stay schtum about the meat of Brexit negotiations for now means the nation has been hanging off every titbit of news, including a snapped memo reading “have cake and eat it”. 

So, with confusion abounding, here is what we know from the Brexit plan debate: 

1. The government will set out a Brexit plan before triggering Article 50

The Brexit minister David Davis said that Parliament will get to hear the government’s “strategic plans” ahead of triggering Article 50, but that this will not include anything that will “jeopardise our negotiating position”. 

While this is something of a victory for the Remain MPs and the Opposition, the devil is in the detail. For example, this could still mean anything from a white paper to a brief description released days before the March deadline.

2. Parliament will get a say on converting EU law into UK law

Davis repeated that the Great Repeal Bill, which scraps the European Communities Act 1972, will be presented to the Commons during the two-year period following Article 50.

He said: “After that there will be a series of consequential legislative measures, some primary, some secondary, and on every measure the House will have a vote and say.”

In other words, MPs will get to debate how existing EU law is converted to UK law. But, crucially, that isn’t the same as getting to debate the trade negotiations. And the crucial trade-off between access to the single market versus freedom of movement is likely to be decided there. 

3. Parliament is almost sure to get a final vote on the Brexit deal

The European Parliament is expected to vote on the final Brexit deal, which means the government accepts it also needs parliamentary approval. Davis said: “It is inconceivable to me that if the European Parliament has a vote, this House does not.”

Davis also pledged to keep MPs as well-informed as MEPs will be.

However, as shadow Brexit secretary Keir Starmer pointed out to The New Statesman, this could still leave MPs facing the choice of passing a Brexit deal they disagree with or plunging into a post-EU abyss. 

4. The government still plans to trigger Article 50 in March

With German and French elections planned for 2017, Labour MP Geraint Davies asked if there was any point triggering Article 50 before the autumn. 

But Davis said there were 15 elections scheduled during the negotiation process, so such kind of delay was “simply not possible”. 

5. Themed debates are a clue to Brexit priorities

One way to get a measure of the government’s priorities is the themed debates it is holding on various areas covered by EU law, including two already held on workers’ rights and transport.  

Davis mentioned themed debates as a key way his department would be held to account. 

It's not exactly disclosure, but it is one step better than relying on a camera man papping advisers as they walk into No.10 with their notes on show. 

6. The immigration policy is likely to focus on unskilled migrants

At the Tory party conference, Theresa May hinted at a draconian immigration policy that had little time for “citizens of the world”, while Davis said the “clear message” from the Brexit vote was “control immigration”.

He struck a softer tone in the debate, saying: “Free movement of people cannot continue as it is now, but this will not mean pulling up the drawbridge.”

The government would try to win “the global battle for talent”, he added. If the government intends to stick to its migration target and, as this suggests, will keep the criteria for skilled immigrants flexible, the main target for a clampdown is clearly unskilled labour.  

7. The government is still trying to stay in the customs union

Pressed about the customs union by Anna Soubry, the outspoken Tory backbencher, Davis said the government is looking at “several options”. This includes Norway, which is in the single market but not the customs union, and Switzerland, which is in neither but has a customs agreement. 

(For what it's worth, the EU describes this as "a series of bilateral agreements where Switzerland has agreed to take on certain aspects of EU legislation in exchange for accessing the EU's single market". It also notes that Swiss exports to the EU are focused on a few sectors, like chemicals, machinery and, yes, watches.)

8. The government wants the status quo on security

Davis said that on security and law enforcement “our aim is to preserve the current relationship as best we can”. 

He said there is a “clear mutual interest in continued co-operation” and signalled a willingness for the UK to pitch in to ensure Europe is secure across borders. 

One of the big tests for this commitment will be if the government opts into Europol legislation which comes into force next year.

9. The Chancellor is wooing industries

Robin Walker, the under-secretary for Brexit, said Philip Hammond and Brexit ministers were meeting organisations in the City, and had also met representatives from the aerospace, energy, farming, chemicals, car manufacturing and tourism industries. 

However, Labour has already attacked the government for playing favourites with its secretive Nissan deal. Brexit ministers have a fine line to walk between diplomacy and what looks like a bribe. 

10. Devolved administrations are causing trouble

A meeting with leaders of Scotland, Wales and Northern Ireland ended badly, with the First Minister of Scotland Nicola Sturgeon publicly declaring it “deeply frustrating”. The Scottish government has since ramped up its attempts to block Brexit in the courts. 

Walker took a more conciliatory tone, saying that the PM was “committed to full engagement with the devolved administrations” and said he undertook the task of “listening to the concerns” of their representatives. 

11. Remain MPs may have just voted for a trap

Those MPs backing Remain were divided on whether to back the debate with the government’s amendment, with the Green co-leader Caroline Lucas calling it “the Tories’ trap”.

She argued that it meant signing up to invoking Article 50 by March, and imposing a “tight timetable” and “arbitrary deadline”, all for a vaguely-worded Brexit plan. In the end, Lucas was one of the Remainers who voted against the motion, along with the SNP. 

George agrees – you can read his analysis of the Brexit trap here

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.